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Old Apr 8, 2009, 11:27 AM   #1
Luke Redpath
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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.
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Old Apr 9, 2009, 10:09 AM   #2
Luke Redpath
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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/channelsP...yType=document

[2] http://customs.hmrc.gov.uk/channelsP...HMCE_CL_000346 (see Schedule 5, paragraph 7C on page 47, decision tables 21.2)
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Old Apr 9, 2009, 10:39 AM   #3
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It's at times like these I'm glad I'm not VAT registered....
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Old Apr 12, 2009, 05:21 PM   #4
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Thanks for the Info
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Old Apr 13, 2009, 08:50 PM   #5
Luke Redpath
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Originally Posted by MacDonaldsd View Post
Thanks for the Info
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.
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Old Apr 14, 2009, 03:33 AM   #6
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I currently don't have an accountant but my self-assessment forms are becoming a PITA and I'm sure I'm probably not claiming for enough stuff. Can you recommend a good accountant? What's the going rate?
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Old Apr 14, 2009, 09:19 AM   #7
Luke Redpath
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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?
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Old Apr 14, 2009, 09:31 AM   #8
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Yes, I'm a sole trader. Maybe I overexaggerated...

One thing that's bothering me at the moment is when is something an expense and when is it a capex? From my understanding it's when it has an ongoing use. But is there a value cut-off when the cost just isn't worth accounting as a Capex?

Maybe I should ring the HMRC and ask them.
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Old Apr 14, 2009, 10:24 AM   #9
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This is of great interest to me as I'm a UK developer (on the side, unrelated to my full-time job! ) and in the final stages of debugging my first app, ready to launch in the coming weeks or so.

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)?

Is it worthwhile getting my own accountant too? I guess my next Mac could be an expense, no?
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Old Apr 14, 2009, 10:52 AM   #10
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I've never paid VAT as my sales on the Mac and iPhone are both handled by third parties that pay it for me (and also I'm below the limit for mandatory VAT registration).

As for the Mac, I never claimed for mine as I was under the impression it had to be for exclusive use in your self employment for you to be able to claim for it. It would defo be a Capex anyway which means you claim for a portion of the outstanding cost of it on a rolling basis over a period of years. But that's just my understanding of the rules....
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Old Apr 14, 2009, 11:35 AM   #11
Luke Redpath
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Originally Posted by johnnyjibbs View Post
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)?
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.

Quote:
Is it worthwhile getting my own accountant too? I guess my next Mac could be an expense, no?
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.
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Old Apr 14, 2009, 12:04 PM   #12
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Thanks, this thread has given me an interesting insight. It sounds like I don't need to worry in the short term, apart from declaring my income tax of course, but it may be worth reading up on in the medium term if this becomes a successful hobby...
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Old Aug 28, 2009, 12:44 PM   #13
DominikB
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Luke, your 2 posts describe it correctly. I've came to the same conclusion after my research and consultations with various accountants. These rules are mostly shared for whole EU.
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Old Oct 14, 2009, 06:09 AM   #14
tayldn
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Thank you

Awesome research. Thank you for sharing it. Paying VAT twice would be quite a headache. As it is; Apple are basically taking 43% of the sale value. I have another partner taking 5 per sale (+VAT)- makes pricing a complex business! Cheers, Dan
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Old Nov 5, 2009, 06:39 AM   #15
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Can you please explain the benefits of being vat registered and the downfalls if any? i have to go vat registered i am a small sole trader working in the construction industry.. could you please outline any advice you have about being vat registered,, thanks.
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Old Jul 20, 2010, 05:08 AM   #16
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Thank you Luke for your succinct explanation! I have recently become VAT registered and I just phoned the VAT helpline for help filling in my first VAT return. Thank goodness I had your post in front of me otherwise I would not have thought of mentioning "electronically supplied services" etc. Your summary seemed spot-on.

The only point I would add is that we have a self-billing agreement with Apple. The VAT helpline-man got quite shirty when I didn't recognise this phrase. He couldn't understand how I could have a self-billing agreement and yet not recognise the phrase (very easily actually).
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Old Jul 20, 2010, 06:05 PM   #17
Luke Redpath
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I'm not sure that the agreement constitutes a self billing agreement. Either way I generate my own invoices for my records.
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Old Mar 26, 2011, 01:22 PM   #18
MrBriz
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Hi Luke,

Thanks for the detailed message, it has helped me understand how all this works

This is a minefield that I've never had to deal with before.

I've just setup a company, and unfortunately I have drawn the accounting short straw! The other guys are much more competent developers than I so I get all the paperwork

What I wanted to ask is if I could pick your brains to better understand the Apple/Developer/Company VAT relationship.

I only ask because it seems you have a handle on everything and seem competent and literate! Some of the postings I've read on the internet seem like they have been written by pre-pubescent teens! I want someone who knows what they are doing who is willing to allow me to pick their brains.

There is also a drink or two in it if you happen to be anywhere close to me, but I very much doubt that, or just the general warm feeling you get but helping out someone in need.

Thanks in advance for any wisdom imparted.

Regards,

James

(P.S. Sorry about the random befriending, I wanted to PM you, but for some reason I cannot seem to figure out if it's possible on this forum... am I being a little dense?)
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