VAT Registration

[CrazyGuy]

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I'm new here - but I've been a full-time affiliate for about a year now. Mainly been hanging out on US aff boards as most of my merchants/sites are based there. But I have a very UK question to discuss ...

Anyone gone through the process of being VAT registered on the basis (wholly or mainly) of affiliate commissions from US companies?

I'm just about to reach the threshold but I can imagine this getting messy. If my wife and my accountant don't fully understand how this business works, what chance is there of steering a clean course through HM C&E?

1) I think I'd classify what I do as a professional-type service that means the VAT should be assessed where my customers are located (ie - no VAT). Any precedents?

2) I have virtually no UK/EC merchants or networks but plan to add some - do they routinely allow for VAT in their forms and payments?

I suppose I should be happy about the income level, but I have a bad feeling about this VAT thing.

[NeilDurrant]

Welcome to the forum CrazyGuy!

My total income is split between affiliate income and my own retail product sales but out of the two the affiliate income is the easiest part of my VAT admin.

As for explaining your business model, I'd keep it simple and explain to customs that you sell advertising!

I declare income from US merchants/networks and customers as zero rated.

All the UK networks allow for entry of your VAT registration details and they will then simply add the VAT to your commission payments. Some of the independents aren't so simple and need to be taken on a case by case basis.

NB. CJ state that as they are a US based company they are not liable to pay VAT. I haven't had any queries over this from C&E but I believe someone else on this board had a problem some months back and I'm not sure how it was resolved.

[Ballswinger]

Had two of those lovely VAT peeps around the other day............as far as they and my accountant were concerned CJ payments are zero rated.

The only thing I would question is if you use a Pay Pal account to exchange US dollars into Sterling and the VAT involved there-on.

[999gi]

Are you guys sure that US income is zero rated (as opposed to "outside the scope of VAT")?

I know that there is no VAT on it, but do you record the gross transactions for VAT reporting purposes.

As far as I know US income wouldnt count towards the 55k limit (or whatever it is) but if it were zero rated then it would, so the situation could arise where you could have 60k of income, have no VAT to pay, but still have to register and do VAT returns.

[NeilDurrant]

I've have a fat book on the bookshelf with a few hundred pages of fasinating reading called 'The VAT Guide'. Never read it. Never will

But from my accountants translation then yes the US revenue contributes to the turnover limit so maybe I'm calling it the wrong term and as you say should refer to it as 'outside the scope' rather than zero rated.

[Robber]

I try to steer clear of the accounts stuff but from what our accounts guy said your best bet is to just phone up the VAT man, tell him the story about what you do, let him get confused about it for a little while, he'll ask his boss, then he'll ring you back and tell you what to do.

Saves you worrying about it!

[wibble99]

I was specifically told that my US earnings from companies like CJ were 'outside the scope of VAT' and not zero rated.

If they were zero rated then that would make my business 'partially exempt' of VAT which causes problems as I'd not be able to claim VAT back on all my expenditure. But as it's outside the scope of VAT then it doesn't matter and I can claim all my VAT back.

[CrazyGuy]

Glad I started this as it highlights the confusion.

Certainly there is a significant difference between "zero rated" and "vat exempt". Zero rated counts as "taxable supplies" (and so towards the registration threshold whereas vat exempt doesn't.

However, I think there are other classifications than those (prob to do with place of supply) that are relevant - and it's one of those I suspect is critical to my situation.

Considering this, I expect US affiliate payments to count towards the registration threshold (so they won't be vat exempt as such) but to not be required to charge VAT on them - prob (as I said above) due to where the service is considered to be delivered.

@wibble99 - my understanding is (I think ) exactly opposite to what you have been told. I believe a business that deals say 50% in VAT exempt supplies can only reclaim VAT on 50% of their purchases. Dealing in zero rated items wouldn't change what you can reclaim VAT on. Zero rated items are fully fledged, all included, VAT participants ... it's just their rate is 0%

@999gi - I think you situation you describe could certainly occur. A small part of my business is zero rated printed books. If that were all my business and I sold enough of them I could certainly be in a position where I had to be VAT regsitered, doing VAT returns, but charging no VAT on anything I sold. So I guess the same could be true of a trans-Atlantic affiliate business.

I'm going to try and speak to someone at the local VAT office for Scotland (in Grimsby ) on Monday to get their take on this. The other thing I'll be looking into is if its appropriate to do this on their cash accounting model. One of the things concerning me about being VAT registered is the constant references to invoices as the core document - yet I raise virtually no invoices for affiliate commissions, and would frequently be reluctant to say exactly how much the payment will be until I receive it!

[1st Stop]

From past experience the cash accounting option is only a benefit to you if you are getting many non payers!

It also can be a pain for your accountant who may charge you more.

My advice stick to the old traditional way its easier and safer on your pocket!

[wibble99]

CrazyGuy - I said the supplies were 'outside the scope of VAT', not exempt. They're different things.

Below is an email I got from the VAT office when I asked about whether having income from the US would make me partially exempt and so unable to claim all the VAT on my expenditure:

5th September 2002.

1. In reply to your e-mail, the supply of web site advertising is classed as a supply of services for VAT purposes and VAT Notice 741 Chapter 11 is relevant.(you can view this on our website , address = www.hmce.gov.uk)para 11.6 relates to website advertising.) In order to determine whether you need to charge VAT on your sales you must establish the place of supply - in the case of your USA customer the place of supply is currently the USA and the sales would be classed as outside of the scope of UK VAT (not exempt).

2. If you registered for VAT and made taxable supplies as well as these outside of the scope supplies - you would still be entitled to reclaim any VAT incurred on your expenses/purchases made in relation to the outside of the scope of UK VAT supplies. The partial exemption rules will not apply in this case as the sales made are not exempt but outside of the scope sales.

3. Our website address has a useful section entitled "Trading on the Internet" which you might find helpful.

4. You should also read our Business Brief 06/2002 (also available from the website address) which is concerned with the Clarification Of The Treatment Of Internet Service Packages. I trust this is of help to you.

Yours truly,

In that they're saying that supplies to the US are 'outside the scope of VAT' and specifically not exempt, so I don't become 'partially exempt', and this means that I'm able to claim all the VAT back on my expenditure.

[FleaPit]

I have run a business for 4 years now where many product lines are zero rated. This does not affect how much you can claim back, as long as you are registered then you can claim back everything that is a business purchase. For the first year I was claiming back a lot more VAT then I was paying which was quite nice seeing a VAT payment in the bank account every 3 months. Now the business makes a lot more money the VAT payments go the other way but I guess that's the way it should be if you want to be successful! I had the Customs boys crawling through my accounts at the start of the year and everything was kosher so I know we did everything just right.

As far as VAT outside of the UK goes it's quite simple. Any country within the EC needs to have VAT added where applicable and any other country outside the EC doesn't need to bother regardless or product or service.

[Supercod]

Originally posted by FleaPit
Any country within the EC needs to have VAT added where applicable

I am no accountant however I know from past experience that it's not that simple to deal with EC companies. First off you need to check with the VAT people that they have a valid VAT number and that the company is located where they say it is. When you invoice them, you put your vat number on the invoice however you don't charge them VAT, what happens is they pay VAT in their own country (however and this is the fun part, if they don't pay the VAT your still liable to pay it). I think it's called an Intrastat trade, anyway you need to fill in a white sheet that comes after you fill your VAT return.

Here is a handy dandy link for checking

http://europa.eu.int/comm/taxation_c...n/vieshome.htm

You still need to call up our VAT people for the address checking.

Anyway I am not an accountant so seek advice before you do anything I tell you, which goes for everything LOL

[CrazyGuy]

wibble99 - thanks for the clarification and extra info.

I hadn't yet come across the term 'outside the scope of VAT' in my VAT reading - and thought it was being used interchangeably with 'VAT exempt' earlier in the topic.

That's a very useful email from the VAT people though - thanks for sharing.

[Tax]

Click here to view answers to many of your questions about VAT Registration [/url]: http://www.taxpartnersuk.com/vat_reg...ion_online.php

[babrees]

WOW! these spammers must have a competition going - who can dredge up the oldest thread! This one is 8 years old!