Newzbin:The VAT Situation
From Newzbin Documentation
[edit] VAT? huh?
(warning: this is pretty dull reading but we're starting to get a few tickets about it that require explaining it)
The UK (and EU) has a tax system called VAT - Value Added Tax.
All companies/retailers that turnover a certain amount must be VAT registered by law. We fall into this category, and are thus VAT registered, and have a VAT number.
VAT works by the retailer (that's us) collecting VAT on behalf of the Government. We then pay it to the Government on a quarterly basis.
This means we're supposed to add on 17.5% to our prices (the current rate of VAT in the UK), set it to one side, then give it to the Government every 3 months. We basically do their work for them. It's genius on their part.
Technically, we're only obliged to charge VAT to customers in the UK and EU. The rest of the world doesn't have to pay it.
This means that our prices for customers in the UK and EU should be higher than those for customers outside this region. You will note that we charge the same amount for everyone; 30 pence sterling a week.
To effect the VAT raise for only non-EU we would need to know where each of our customers are. And we don't fancy asking for and storing addresses in order to achieve this. We didn't think you'd want to tell us it either. Rightly so. Privacy and all that.
So, when we signed up to the VAT scheme (because we had to), we did not raise our prices for anyone. Instead of charging 25p+VAT to customers in the UK/EU, and a straight 25p for those outside, we just left it as it was.
In effect, we "absorbed" the cost of VAT, and just paid the 17.5% levy ourselves. This is because we're nice people and didn't want to pass on the cost of the tax.
Obviously, this means it cost us money. The Government wants paying VAT from somewhere, and us just being nice isn't going to cut it when we don't pay them the VAT they're expecting. So it comes out of our pocket. In effect, instead of earning the full rate from your subscriptions we earn 82.5% of it. 17.5% goes straight to the Government.
Now we don't particularly care about that. So we lose a bit of revenue, never mind. What we do care about is when we lose that revenue again, because some people outside the EU are asking for a VAT refund. You are actually entitled to do this, because you don't have to pay it. See above.
However, when you ask us for a VAT refund, note what you are doing. You are taking another 17.5% out of our pocket, which we haven't actually technically charged you in the first place, because we didn't raise our prices when we registered for VAT. This is pretty annoying for us. So now instead of VAT costing us 17.5%, it costs us 35%, because we paid VAT once to the Government, and then again back to you when you asked for a refund.
To avoid this scenario, we can do a couple of things:
- We can raise our prices by 17.5%, thus charging VAT, probably to everyone. Yes, we know we recently raised prices, but we'll do it again if we have to.
- We can start asking you for your address, and if you're not in the EU, not charge you VAT.
So, in summary.
- Even though your email receipt for your topup says you've been charged 17.5%, you actually haven't because we absorbed the cost.
- If you ask for a VAT refund on that, you cost us money that we were trying to save you in the first place.
- If lots of people ask for VAT refunds, we will put the price up and actually start charging VAT, so please, don't? Do you really need that 30p back? :P
- Asking for a VAT receipt however, is perfectly fine (and again we're obliged to give them by law) - this will let you reclaim the VAT from the Government yourself (which we paid them, remember? this is good, do it).
Sorry this was so boring but it's getting enough of an issue that it had to be written.