VAT and paypal in the UK

[musicales]

UK VAT is payable if the buyer is in the UK or EU as far as I know, but not if it's outside that region. The trouble is, with paypal, where a lot of my income comes from, there is no way of knowing, other than by guessing based on the email address.

Does anyone know what the UK Inland Revenue's position on this is? I tried asking them and they just said you must know where your customers come from. Great.

[abbeyvet]

You will need to collect user location data before passing the user to PayPal.

Most shopping carts/membership management systems have the facility to determine tax payable based on location and deal with passing the correct information to PayPal.

[andye]

There's quite a bit of stuff about this on their website. AFAIR it accords with the position they've told you about over the phone - ie you need to know the customer's billing address.

Maybe PayPal can be set up so that it always gives you the 'delivery address' (I know it's normally an option for the customer in PayPal, maybe you can make it compulsory?)

Of course, these issues only come up if you're over the VAT limit, or if you've registered voluntarily.

Best wishes, a.

[dmorison]

From hmce.gov.uk:

FAQ: Trading on the Internet [customs.hmrc.gov.uk]

Electronically supplied services including digitised products [customs.hmrc.gov.uk]

UK VAT is payable if the buyer is in the UK or EU as far as I know

My totally unqualified understanding is that it is slightly more complex than that. For the supply of a digital service (web services, hosting, software downloads, info products etc.):

If your customer is in the UK, you collect VAT at the UK rate.

If your customer is anywhere else in the EU and is not VAT registered in their own country, then you collect VAT at the UK rate.

If your customer is anywhere else in the EU and is VAT registered then you do not collect VAT. Your customer is required to account for it themselves at the rate in their country.

If your customer is anywhere else in the World, then you do not collect VAT.

[musicales]

dmorison - thanks - from what I gather there, supplying digital products including access to websites, and even downloading information and ebooks seem to be VAT exempt altogether.

[dmorison]

musicales,

What gives you the impression that a web service or digital download is exempt?

That is not my understanding, and does not seem to be the case given the number of web services that do charge VAT...?

[musicales]

from your second link:

For VAT and duty purposes, all supplies of digitised products are treated as services. This means that customs duties are not chargeable in the EC.

[musicales]

reading it again I may be mistaken - I think it may just mean overseas goods. I was just getting too hopeful!

It still leaves me with a major headache as to how to work out where someone is from.

[abbeyvet]

Customs duties and VAT are completely different things.

[dmorison]

It still leaves me with a major headache as to how to work out where someone is from.

Most websites ask rather than try to work it out.

Don't forget that you also have to ask about the VAT registered status of your customer aswell. The most common way to do this is to ask for your customers VAT / Sales Tax registration number, which is how Google do it.

[pp_rb]

You might want to try setting up PayPal's Express Checkout to eliminate this problem.

With Express Checkout, you can transfer PayPal customers over to the PayPal pages to log in and authorize the transaction, but they are returned to your site before the payment is finalized. PayPal passes you the shipping information the customer has selected, and you can use that to calculate and display tax and the final total before the customer clicks the "Pay" button on your site.

[vincevincevince]

Just a note:-

It is easier to bill VAT for everyone and give it as a refund (people like getting money back!) than to not bill it and then ask them for extra (people help being hounded for extra money!). If in doubt, charge and then return later.

[musicales]

My problem is that the transaction value is low and I have been thinking of incurring the VAT cost myself where it applies, which is only probably in 10-20% of cases.

I guess the simple answer may be simply to ask people (after the transaction has taken place?) and accept that I have to pay the VAT myself where it applies.

[pp_rb]

It's still probably best to try and identify those who need to pay it prior to purchase, since contacting them afterward to ask for more money could potentially become unmanageable.

"Best" scenario: you send the user to PayPal's Express Checkout, and when they return to your site, you detect whether they have a UK or EU address. If it's a case where you need to ask them if they are exempt, you display a checkbox on the page they see after returning to your site. This way, those who should not be concerned with the tax never have to see this question.

Not best, but maybe workable scenario: You add a checkbox on your page prior to sending the customer to PayPal, e.g. "Check here if you are a resident of the UK or EU" - you would probably need to redirect them to a page with some script on it:

- If they did not check the box, send them directly to PayPal
- If they did check the box, but you need to ask them another question about where they reside or whether they are exempt, you display the question on this page
- After they answer the question and submit the form, you calculate their new total and pass them to the PayPal site.