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March 1, 2016
E-commerce  |  6 min read

How To Triumph Over the New Value-Added Tax Changes

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Ellis Friedman

When it comes to ranking your favorite tasks as an entrepreneur, dealing with government forms and regulations is likely to rank toward the bottom. (Apologies to those who take sick pleasure in doing their taxes.) 

That said, there are some government regulation and tax changes you need to know about if you’re located in or do any business in the EU, especially the UK. And if you do, you’re likely (and very hopefully) familiar with the VAT.

Yes, the VAT. It’s the value-added tax, and if you need a refresher on what it actually means, it’s a consumption tax. That means that most goods, including software, are subject to an extra tax on the purchase price. Businesses with taxable turnover that exceeds £81,000 are required to register with HM Revenue and Customs.

Here’s the change: As of January 1, 2015, VAT on the sale of digital content in the EU will be now determined by the purchaser’s country instead of the supplier’s country. If you sell your digital content through a marketplace like Google Play or the Apple App Store, you’ll be covered by assumed liability since the marketplace itself is responsible for determining and reporting liability.

But sales outside such marketplaces assume liability themselves and have to comply with the HRMC regulations outlined here. And a quick disclaimer: We are not offering legal advice; if you have any questions, needs, or issues you should seek advice from your appropriate legal counsel. 

Great. Do the VAT changes impact me?

The law affects anyone doing business in or with the EU. Virtually all goods and services that can be purchased and/or downloaded by retail customers fall within the scope of VAT rules.

Wonderful. This is just what I needed. How do I handle the VAT issue with the changing laws in the UK?

Isn’t this one of the funnest things about running a business? But VAT has been due on any and all sales of digital goods and services in Europe since 2003, so at least this isn’t entirely new. These latest January 1, 2015 changes focus primarily on reducing loopholes and increasing adherence. Essentially, it means there are more reporting liabilities. 

This post from Forbes explains some of the more legal aspects, such as: You will need to gather the locations of consumers to determine the proper VAT rate to collect for transactions in Europe and be prepared to demonstrate that you have a revenue and accounting system which properly sources its revenue from consumer transactions and properly self-assesses its VAT liability. 

I’m so excited. How do I collect VAT and different kinds of taxes?

If you’re an Infusionsoft user, our software provides multiple tax fields. Country tax should be appropriately updated in order to collect VAT. Applicable countries are listed at http://www.gov.uk/vat.

If you don’t use Infusionsoft (and even if you do), check out the all the information on the UK government’s VAT page. Warning: it is a lot to take in. 

This is the best. How is Infusionsoft going to help overseas users comply with the new VAT changes?

Check out the tutorial video below, in which our product experts have suggestions for collecting and reporting VAT. 

What changes is Infusionsoft making?

Infusionsoft is already capable of adjusting to the VAT changes, and while you as a user might need to make a few adjustments, the software is already capable of meeting these needs.

Below is a transcript of the video:

Welcome! Today we are going to show you a few ways to ensure your Infusionsoft account is set up properly to collect and report Value Added Tax. We will start on the Dashboard. To Create or Adjust a Country Tax, let's go into your e-commerce settings.

Here you’ll make sure that all Value Added Tax countries and percentages are correct. You can add or just adjust by country. Reference www.gov.uk/vat for the official list.

Don’t forget to click save, then click back to search results.

One of the important pieces of value added tax legislature is the reporting. Click on orders, and then we’ll start a new search. Let’s add some search criteria and first identify orders by country. Select a country, then enter an appropriate date range. Click search. 

The easiest way to create reporting for Value Added Tax is to add a specific tag that you can leverage. You can apply or create a tag for this purpose by selecting apply a new tag. Click process action. This may take a moment, especially if you have a lot of orders to be tagged.

Once you have your taxes and tags set up, you can then use e-commerce reports to identify all of your Value Added Tax activity for a specific time period. Once you add your Value Added Tax tags to the all sales (Itemized) report, it will then allow you to view these transactions, and sort them however you require. 

You will now have an itemized tax line for all applicable Value Added Tax transactions. Congratulations! 

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