Does VAT apply to Google AdWords?
Value added tax (VAT) will not apply to your AdWords charges until July the 1st 2003.In response to the emerging electronic business environment, European Union (EU) member states are modifying the rules for applying VAT to certain digital services, including web advertising. When such services are consumed within the EU, they will be subject to VAT. Therefore, all AdWords accounts with EU billing addresses will be subject to VAT after the new rules take effect on July the 1st 2003.
How are AdWords advertisers affected by VAT?
Starting July the 1st 2003, AdWords accounts with billing addresses within the European Union (EU) will be subject to VAT. If your account is affected, you will have the option of providing us with a valid VAT registration number and self-assessing your VAT. If you do not have a VAT registration number, or if you do not submit your VAT registration number to us by June the 30th 2003, your invoices will reflect the additional VAT charges at your EU member country rate which will have been determined by your account's billing address.What do I need to do as a result of the new VAT rules?
You do not need to worry about VAT if you have a valid AdWords billing address outside of the European Union (EU). If your AdWords billing address is in the EU, we'll automatically add VAT to your AdWords invoices, starting July the 1st 2003, unless you supply us with a valid VAT registration number.New advertisers are being asked to provide VAT information during the account set-up process. If you're a current advertiser, and already registered for VAT in an EU member state, please follow the steps below to enter your VAT registration number. This will enable you to self-assess VAT for AdWords. If you do not update this information, we'll start adding VAT to your AdWords invoices as of July the 1st 2003 in accordance with the new EU rules.
To provide Google with your valid VAT registration number, please follow these steps:
1. Log in to your AdWords account.
2. Select the appropriate VAT option at the top of the page.
3. Enter your VAT registration number in the VAT field.
4. Click Submit.
[adwords.google.com...]
Shak
(thanks to Jamie for this information, who I believe was at PubCon)
In Denmark the VAT is 25% on everything. I am not sure if it is higher anywhere else ...
A company that is not VAT registered is usually a sole trader with a pretty small turnover. Everyone else has to register.
The US does have something similar to VAT - Sales Taxes.
"A company that is not VAT registered is usually a sole trader with a pretty small turnover"
Exactly. This is going to affect the small business while giving a leg-up to the multi-nationals and big businesses.
Didn't expect much sympathy for my position here, because if you look in the profiles of businesspeople in 'Entrepreneur' or in any magazine for businesses in the UK, 90% of them are public schoolboys with rich parents. It's just mentioned flippantly that they went to some school for yuppie kids, but has a major bearing on life. No doubt the same class hang around this forum - and can therefore afford to dismiss aspiring businessmen who don't have the resources to register for and reclaim VAT.
Instead of criticism, I was looking for some advice.
I don't have time, money or contacts to do all the admin. for dealing with the VAT man. I work 60 hours a week in a restaurant while running my internet business at night-time. I worked 100 hours in total last week - where shall I find the time to do VAT returns? Try to understand not everybody is in the same position.
I can now claim my VAT back on Google AdWords, but I have to pay VAT to Customs and Excise on my sales. And to remain in business, my sales need to be higher than my costs and therefore Customs and Excise get 17.5% of my profits.
The small guy actually has the advantage (I know this as have only been VAT registered for a few months and the finance issues are quite different). Try this: 22% income tax, plus 7% national insurance, plus 17.5% VAT returns adds up to a maximum of 46.5% tax that I pay to the government. And I am not in the 40% tax bracket - they can pay up to 64.5% tax, if they are VAT registered.
And if you still think you have the difficulties, become VAT registered. Any trader/business can do this, even if your turnover is very low.
Time for VAT returns? Use an accounting package - many of them do the VAT for you. There is only 9 boxes to fill in and unless you deal with other EU countries, you can ignore many of them. It took me an estimated 2 minutes to do my first VAT return. Compare that to your Income Tax return, which takes hours.
Without wishing to give a lesson in basic accounting, VAT should have nothing to do with reducing your profits. It is a tax which is to be added to the sale price.
Example:
You buy something which is £100.00 - it has VAT added, so you pay £117.50.
You sell it for £200.00 (you have made a profit of £100.00) - it has VAT added so the customer pays £235.00. You have already paid out £17.50 in VAT when you bought the product, which you claim against the £35.00 you have charged in VAT. You owe £17.50. Your profit of £100.00 remains the same :)
>No doubt the same class hang around this forum..
I don't think so!
and
>>This is going to affect the small business while giving a leg-up to the multi-nationals and big businesses. <<
The first statement is true, the second is not true
A business with over £56,000 turnover must be Vat registered. A Vat registered business must charge Vat and can reclaim Vat. A smaller Non-registered business does not have to charge Vat and cannot reclaim Vat.
This puts the small business at a competitive advantage when selling to non-vat customers. They charge lower prices
Let me give you an example two similar small hotels side by side. One below the Vat threshhold, one just above. One charges £50 for a room, the other charges £58.75 (price plus vat). Its the same produst, but the larger business is at a disadvantage, as punters are likely to go for the cheaper product.
Admittedly the larger business can reclaim Vat, but take it from me, its a lot less than you have to pay the Vatman on your own selling price.
I disgress but our plumber tells me he stays below the Vat threshold to stay competitive, goes out onto the golf course for a few months if his turnover is getting too high
Also, when you are NOT VAT registered, most people sell at a price including the extra 17.5% as then your prices are similar to your competitors (you might as well take that extra money instead of customs!).
So, when I became VAT registered, I could not add an extra 17.5% to the products, they would not sell. In fact, some people complain at how expensive some of products are anyway (mainly on a few rare lines), so to add more money would give them a good reason to hit the back button.
So with the above figures:
NOT VAT REGISTERED: £235.00 - £117.50 = £117.50 profit
VAT REGISTERED: £200.00 - £100.00 = £100.00 profit plus £17.50 to customs
Hence, the reason why I indicate they take 17.5% of the profits. A VAT registered company or person becomes a mini-tax collector.
P.S. "They charge lower prices" (or could it be: They make larger profits)
That logic doesn't work if you are selling to a VAT registered company.
If:
VAT registered supplier sells @ £100 + £17.5% VAT = £117.50
Non VAT registered supplier sells @ £117.50
I would buy off the VAT registered supplier, as the cost of goods is £100 and I can claim the £17.50 back against VAT on sales.
Buying off a non VAT registered supplier who has hiked his prices by 17.5% means that cost of goods is now £117.50 and I lose an extra £17.50 of hard earned profits.
Col
I was speaking to Google UK yesterday about this and other matters. There is a problem with the form that is capturing VAT numbers. They couldn't tell me whether the numbers aren't being captured at all, or the form isn't clever enough to stop asking once you have submitted the info.
I was advised to stop leaving VAT details for now, and that they would ring me once the form was fixed.
Col
Hmmm... maybe it is worth it? The United States of Europe (otherwise known as the EU) is now full of so much red-tape that I thought VAT returns would take hours. It might be worth registering, if it only takes "2 minutes", to do our entire annual VAT returns and get thousands of pounds off the government.
Do those "2 minutes" include collating the figures from scores of places where you advertise your business, filing away all your receipts and invoices, adding all the figures to the financial package, learning how it works, restarting your computer when it crashes, hanging on the call-waiting system of the relevant government department listening to 'Greensleaves' blah blah blah?
After I read your statement, I went to a site about VAT and it all looked so complex.
If it is going to going to merely take us an hour or so every month, then it might be worth reclaiming the VAT. Otherwise I haven't got the time. There are only 24 hours in the day and I feel tired if I sleep less than six, although I have tried.
I'm very cynical about anything to do with the government. Anything that is *supposed* to take, say, an hour, ends up taking me two days. And, no, it is not 'cos I is dumb :)
P.S. Yes, the VAT in Denmark may be 25%, but I was listening to Radio 4 a few days ago and I was staggered by the luxuries the Danish population enjoys. Apparently, it is common practice for parents to go their child's school play in the middle of the day: nobody bats and eyelid. Plus they have a world-class health service and lots of time off work. The health service in England is a joke - my Uncle had a blood pressure attack and I had to wait with for 18 hours in the A&E waiting area before he was seen. Plus, as numerous international comparison charts have revealed, people in the private sector in London work the longest hours in Europe. No maximum working week is implemented here unlike on the Continent.
If the beef is with HMCE, then maybe those that are bothered by it should take the issue up with them at their web site.
I think the grey area is whether Google will impose VAT on US$ payments and if so what exchange rate will be used.
Will they impose Sales Tax on advertisers based in the US or not? If not then we have to decide whether to not compete in that market, hike the prices to take account of the extra spend, get the clients to pay for the traffic themselves, or absorb the cost of us having to pay the VAT, or become a plumber and play golf for 2 months a year.
The taxing of digital services was always going to be a tough one to get your head around. For companies like us who deal with clients on a lot of continents, there may well be trouble ahead, the loser in this could be free trade and competitiveness, and also the governments trying to raise money in taxes that are difficult to understand, collect and administer.
Just on the point on the production of a VAT return, it does take a few minutes to produce, and is gleaned from all the data that ALL businesses, regardless of their size should keep, the software package just makes life a bit easier.
Exactly. You type in invoices in and out, plus payments in and out into a simple accounts package and it will usually do the VAT return for you. Plus, the figures from the accounts package can be used to do your self-employment tax return(s) too. I use TAS Books and it will even print out a VAT return for you.
P.S. I don't think you'll get the government paying you thousands of pounds per year - you should owe them if you have made profit. Secondly, you may have to do a return every quarter or even every month. But it is so simple, I double checked everything so many times, sure I had missed something out, but I hadn't!
