Hi there and upfront apologies for this (necessarily) long post, as I feel it's important both for subscribers (customers) of e-junkie services and platform providers (which e-junkie is) to provide a definitive answer to the below.
Prior to 1st January 2015, e-junkie subscribers gave their prices (P) for their digital downloads, exclusive of VAT. If they were VAT registered (and VAT was enabled in their Admin section), when a purchase was made for a download, the UK rate of VAT was added to P, (regardless of which EU country the customer lived in) and the final amount a customer paid would be P + VAT.
Subscribers would receive the 'final amount', keep the P element and send HMRC the VAT element?
That was my understanding of how things worked prior to 1st January.
From 1st January 2015, the e-junkie setup only allows for their subscribers to receive the price (P) of their downloads, with no VAT added.
E-junkie is able to provide the necessary information for subscribers to work out their VAT liability ONLY after a customer has paid, so in effect, the VAT element must come from the price (P).
i.e. the subscriber receives (P) and from this VAT (calculated from the information provided by e-junkie) is subtracted and paid to HMRC, leaving the subscriber with a shortfall in the price (P).
To overcome this, e-junkie is advocating increasing the price (P) to include the VAT element. This recommendation, which I believe is not in keeping with the new VAT rules, has several flaws and is an unfair, and an unreasonable and possibly unlawful, solution, for the following reasons:
What percentage should be added to the price to cover the VAT and make it equitable;
We would be collecting VAT at inappropriate rates using this umbrella, even though we end up passing on to HMRC the correct amounts from the logs;
This would increase prices unduly and possibly illegally;
Non EU residents (i.e. USA, Canada, Australia etc.) would be forced to pay the same price as EU residents. They have no VAT liability so the incorporated VAT in the price is not correct;
All residents within the EU would be forced to pay the same price for an item even though their own country's VAT rate could be more or less than neighbouring countries VAT rates;
It would be difficult to justify and/or explain should a customer wish to know why they were charged that amount.
How I believe the system should be working in order to comply with the new VAT rules is as follows:
Customer places and order; country of residence is established; if within the EU, the correct rate of VAT for that country is established and used to calculate the VAT, this is then added to the price (P); this total amount is submitted for payment; subscriber receives the total amount and from the logs provided, accounts for their VAT liability and pays HMRC what is due.
Easy peasy but so very, very difficult and unenviable task for platform providers to implement but that is their obligation in order to be compliant with the new VAT rules.
This is my interpretation and understanding of the new VAT rules, gained from various sources, the main being Taxamo.com (no affiliation).
If I am erroneous in any of the above, please let me know.
My apologies if so found.
Mike
