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How does VAT really work? (19)

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Hi all, this will hopefully be the first of many posts

After doing a bit of study here and there in the forum I decided it's time to get started. I will use the 40 Days Newbie Tutorial by vortex.

So I setup accounts at Mobidea and PropellerAds and of course just set up my Company. It only takes 24 hours in the UK!

The UK Tax agency (HMRC) asked if I want to register for VAT which is optional until 85.000£ in revenue. But, according to some other post on the forum, registering for VAT is necessary to avoid paying 20% more for traffic.

In this other post (https://stmforum.com/forum/showthrea...filiate-income) I read:

If my understanding is correct, even if I register for VAT, I will still pay that to PropellerAds and then get some sort of reimbursement from HMRC? Or will having a VAT number stop Propeller from collecting VAT?

Thanks

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I registered for vat as fast I could because services that I used to provide service charged me for vat. So on the first month I saved at least €2000 thanks to VAT id so I'm pretty happy.

If you have a VAT code then sellers will not charge you for VAT anymore which is great, but that also means, if you have customers then they will have to pay VAT when they are from EU and not registered for VAT.

VAT is value added tax.. that means you don't need to pay it from your own money.. your customers pay for it.

One of the reasons why I don't want to buy traffic from AdCash is that they are registered in my country and I would still have to pay VAT to them :P

So technically you should register for VAT code because you will be saving tons of money from taxes, but keep in mind that if you start charging customers, you need to include it for EU entities.

IF PropellerAds charges VAT then yes, you can technically get that VAT amount back if you make an application of some sort. but it would be still nice if you have your own VAT id, that way you won't pay VAT anymore (only to UK companies).

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Are you sure about it?
When I pay VAT to a business in my own country I get it back from the tax office.

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Yes, I can get it back too, but I don't feel like dealing with our IRS when I don't have to :P
My company has triple A credit rating by bisnode, yes.. but I'd rather keep away from IRS as much as I can.

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Thanks @diplomat for the quick reply.

So Mobidea in this case is acting as my customer, since I get paid to provide them traffic. They are an EU company with VAT (in Cyprus). Which means I will not receive VAT from them.

However Propeller will still charge VAT (just asked their support). They are also in Cyprus, and it makes sense given what you said:

At this point I wonder how does the "VAT Refund" works. I guess that PropellerAds will pay VAT to the state of Cyprus. But I ask for a refund in the UK.

Thanks again, it was really helpful.

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Also,

Does this mean that I buy services (traffic or other stuff) outside the EU, I do not have to pay for VAT?

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Yes

Hmm.. I don't know about that actually, haven't had that kind of experience before. I guess if you have a VAT id then you should give it to them.. it's always a good idea.

I understood that your company is in UK? If yes, then they won't charge VAT from you. I have never paid VAT with PropellerAds when I use my VAT id.

I think you need to create some kind of application for your IRS. I have never done it because I'm avoiding IRS as plague.

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This sounds like over-complicating things.

In the EU, if you have a VAT number, you don't charge and don't get charged in B2B transactions.

This includes buying traffic from AdCash or invoicing Mobidea.

If you are in the same country as AdCash, you get charged VAT but get it back - super standard procedure that your accountant should know about.

In other words, in the EU, get a VAT number, add it to all your invoices and ask others to do the same.

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I guess after that post the thread can be closed.
Sums it up pretty much.

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Just a bit more clarification here, cause some people might not know.

You should be able to choose to become a monthly or quarterly payee of VAT. And at the end of the respective period, your accountant will calculate how much in VAT you paid (expenses) and how much you got back (payments from clients) ... in case you paid more than collected, you can ask for a "refund" from the govt. Usually, they will wait for one more period, to give you time to collect more VAT from clients so they don't have to refund anything. As Manu said, it's a standard thing and any accountant should know how to handle this.

A tip : it's now mandatory to submit special VAT reports for transactions made within the EU, so definitely use the services of an accountant ... VAT is one of the most watched taxes and they (officials) can get VERY anal about it.

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Your transaction with PropellerAds falls under B2B Place of supply VAT rule in which case regardless of whether you are UK VAT registered or not you should not get charged VAT from the propellerAds.

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This is serious stuff - the best approach would be to hire a qualified professional. You shouldn't be looking for tax advice on AM forums.

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In order to not be charged VAT, you need to be registered for VAT in your country for sure, at least in my country and I'm quite sure these laws are the same within the EU. For cross-border EU transactions, VAT is not part of the transaction based on the specific EU VAT directive, but both parties have to be registered for VAT. In case of transactions within the same country, VAT is charged and subjects can request a refund when needed ... except for a few special business areas, that have separate regulations.

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In a B2B EU transaction of services as far as UK VAT law is concerned, the important criteria is that you must be registered as a business that is either a limited company, partnership, sole trader etc in order to zero rate the transaction. If you can produce the evidence of the business registration then that should be sufficient. However some of the EU counties have a mandatory requirement that in order for the transaction of services to be considered as a B2B (Zero rated) than the customer must be VAT registered in their country of incorporation.

Since PropellerAds is registered in Cyprus it needs be considered under the Cyprus VAT Law as to what evidence is required for the transaction to be considered as B2B. In absence of the required evidence the transaction would be considered as a normal B2C (business to consumer) transaction in which case PropellerAds will charge VAT. This VAT could not be claimed.

The above is just in relation to the nature of services described in the above posts. Some services falls into exception and would carry different rules.

In any event a professional advice must be taken.

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Spot on! Welcome to the forum Digitas!

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OK, then UK setup is different from what we have here ... so I assume there might be more differences across various GEOs even within the EU, which makes it even more important to consult a local VAT specialist.

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Just a small clarification after speaking with my new accountant and reading on gov.uk.

If my company registers for VAT, I must charge VAT on all my invoices, but with a twist. If my customer (the affiliate network) is VAT registered as well I have to charge a 0% VAT Rate, which still needs to be explicitly present in the invoice.

Hope this helps someone else

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Listen to Digitas, he knows what he is talking about.

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Yep, true. That's why I'm not an accountant I don't look at such details but if I look at our invoices now, we do exactly that in AT too for the transactions where it applies.

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