iOS Question for UK VAT-registered devs

Warning - long, accounting related post follows.

First of all, I'd like to say that I am consulting with an accountant on this issue but I thought it would be useful to see how other UK VAT-registered devs are handling this and whether I'm interpreting the rules as more complex than they need to be.

Here's what I know, based on the iPhone developer agreement and the related schedules:

* In the UK, the EU and most of Asia, Apple act as my "commissionaire" or, in other words, an "undisclosed agent" as HMRC refer to them. This means they are an agent acting on my behalf but in their own name.

* In the US, Canada, Australasia and South America, they are my "agent". I'm not certain if this is an "agent" in the way that HMRC defines them (i.e. a disclosed agent) or some other legal term relating to those jurisdictions.

* In the territories that would usually, or could fall under the scope of UK VAT rules (i.e. the UK and the EU), Apple state that they collect and remit VAT or other relevant sales taxes.

As a Limited Company on the VAT Flat Rate Scheme, I would usually charge VAT for the provision of goods and services unless outside of the scope of UK VAT (i.e. services where the place of supply is deemed outside of the EU). Anything that is outside of the scope of UK VAT is not deemed part of my flat-rate turnover and I do not pay any flat-rate VAT on that income.

On any goods and services where I *do* charge VAT (or, it is zero-rated), that income would form part of my taxable turnover and I would pay the flat-rate on it (even if it was zero-rated).

Here's where the confusion begins. First of all, would an iPhone app be considered a good or a service? My interpretation of the HMRC rules would seem to indicate that "downloadable, non-custom software" is an "electronically-supplied service" and when supplied to another *business*, is outside of the scope of UK VAT. When charged to a consumer, VAT applies.

Then there are special rules for "intermediaries" such as agents, disclosed or otherwise. It seems that for the purposes of VAT, a sale is considered as a supply by Apple to the end-user. Does that mean I don't charge VAT to Apple for the supply of my app to them? Its not really clear.

To put it more simply: how do I account for my iPhone sales. Do I raise a non-VAT invoice internally (one for each territory) for the ex-VAT rate charged to the end-user x number of sales and then consider the payments from Apple as remittance of those invoices in full, less Apple's commission (i.e. a cost of sale)? Is this all outside of the scope of VAT therefore I don't have to pay the flat-rate VAT on the money I receive from Apple?

Lots of confusion, lots of questions, I'd appreciate any insight from any other VAT-registered devs.

OK, with the help of my accountant, the HMRC website and a call to the HMRC VAT helpline, I *think* I've worked this out.

Because Apple act as an undisclosed agent (commissionaire) in the UK and the EU, for the purposes of VAT, there are two separate supplies - a supply from me to Apple and a supply from Apple to the end user.

Apple account for VAT on their supply to the end user as normal. However, due to the updated regulations for undisclosed agents in 2000 [1], there is not deemed to be a supply of "agency services" from Apple to my company i.e. they do not invoice me for "commission". Instead, Apple's "commission" is actually a markup in the price from me (i.e. what they pay me for each sale) which Apple then add VAT to.

I then simply account for VAT on my supply to Apple in the normal way. Because software is considered an "electronically-supplied service", and it is being supplied to another EU VAT-registered business for business purposes, the place of supply rules indicate that this supply is *outside the scope* of UK VAT. [2] Therefore, I issue a non-VAT invoice for the payments from Apple to me and if you're on the flat-rate scheme, this is not considered part of your flat-rate turnover (so you don't pay VAT to HMRC on it).

Example:

* Your app sells on the App store for £4.99 (the UK store)
* The price charged by Apple to the end-user excluding VAT is £4.34
* Apple's cut/"commission" is 30% of this (£1.30) but as per the VAT treatment above for the purposes of VAT its really just a markup in the cost price to Apple from me. Therefore, Apple do not invoice me for this "commission" and it includes no VAT.
* The remainder (£3.04) is considered the cost of the supply from me to Apple. This is the amount I use when raising an invoice internally for my payments from Apple.
* If this value was liable to VAT, then you'd have to swallow the costs (i.e. that £3.04 would be the inclusive VAT price as you cannot charge Apple for VAT on top of this). HOWEVER, my interpretation of the place of supply rules is that software is electronically-supplied services and in the case of a supply to another business (Apple), this is outside of the scope of VAT. As is any supply you make to Apple worldwide (e.g. Apple Inc, Apple Canada Inc., Apple Japan etc.).

Of course, this is still my own conclusion based on advice given and I'd advise anybody to get separate advice from their own accountants. Hope this helps somebody though.

[1] http://customs.hmrc.gov.uk/channels...ntent&id=HMCE_CL_000911&propertyType=document

[2] http://customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_CL_000346 (see Schedule 5, paragraph 7C on page 47, decision tables 21.2)

MacDonaldsd said:

Thanks for the Info

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Your welcome. Don't take it as gospel though; I'd still verify it with your own accountant and please post back here if you hear any different.

I'm afraid I can't; my primary business is consulting (Ruby/Rails/iPhone development) and I've been using Nixon Williams since I started up. They charge £70 a month to do all of your books for you as well as operate things like payroll and doing end of year accounts. I can't say I've been impressed though and am in the process of terminating them.

So, I do my own books (have been since the start anyway) and am fortunate enough that my Dad is a tax accountant specializing in VAT/corporation tax so I generally go to him if I need advice.

Can't say I've ever had much problems doing my self-assessment though and I've been doing them for 6 years now (I used to be registered self-employed many years ago). Are you a sole trader?

johnnyjibbs said:

For the time being I too will be a sole trader, like caveman_uk, so have I read correctly that I should not have to pay VAT? (Because Apple submits that on my behalf for all sales of my app)?

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If you aren't VAT-registered then this is largely irrelevant. If you are, then my interpretation is that Apple aren't charging and paying VAT "on your behalf", but rather charging and paying VAT on their own supply of the software to the end user.

From your point of view, you need only be concerned with whether or not your supply to Apple is in the scope of UK VAT. If it is, then you have to account for VAT on the supply but my interpretation of the place of supply rules is that the supply to Apple is outside the scope of UK VAT.

Is it worthwhile getting my own accountant too? I guess my next Mac could be an expense, no?

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Depends on what sort of volumes you're talking and how complicated your accounting needs are (e.g. as this thread shows, VAT can be quite complicated). If you are simply treating your iPhone sales as personal income (and you're not VAT registered) then all you really need to do is make sure you're paying the appropriate income tax.

I'm not sure that the agreement constitutes a self billing agreement. Either way I generate my own invoices for my records.