Are there any UK authors who are VAT registered?

7408 Views 32 Replies 12 Participants Last post by CelinaGrace, Mar 16, 2015

BlueGen

Discussion Starter · Mar 14, 2015

I am getting in a real pickle over my imminent VAT registration. I am about to reach the threshold whereby I must do this by law.

Does anyone have any experience of how to get this right? Amazon have indicated that they will not pay me royalties inclusive of VAT, even though they have collected it on the ebooks. Does this mean I, in effect, in effect, take a 20% pay cut as soon as my earnings reach a certain level? This seems criminal :-( This would make me worse off than those earning £10k LESS than I am!

My accountant seems a bit bemused by the whole situation. The VAT office are giving conflicting advice every time I call them. There must be a workaround…isn't there?

Someone must have some experience here of what to do. I'd be so grateful.

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Lydniz

· #2 · Mar 14, 2015

Bookmarking this as I'm in the same position. I have asked my mother about it (bear with me on this - she used to do VAT at one of the big four firms) and she has no idea either.

However, as far as I am aware, registering for VAT will be more of an administrative headache than anything else for people like us, since we don't actually invoice anybody. Amazon and the other retailers take care of the VAT on our sales for us so I'm assuming there's nothing we need to do there. On the other side, it might be a pain filling in your VAT returns, but at least you'll get to claim the VAT back on your expenses. My mum said that there are a lot of businesses (her example was butchers) who register for VAT even though they don't charge it, purely so they can claim it back on their expenses.

ETA: my mum also advised me to ring the VAT helpline. Her exact words were "They are generally pretty useless but you never know, you might get someone who knows what they are talking about." So that's helpful. ::)

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Raquel Lyon

· #3 · Mar 14, 2015

Let me start by saying I can't help with your situation, sorry, but your question has puzzled me, and I have to ask if you are registered as a business? I was under the impression (I may be wrong) that individuals simply paid the higher tax rate when their income rose above that level. I would have thought your accountant would know the answer. Maybe you need a new one?

Lydniz

· #4 · Mar 14, 2015

Raquel Lyon said:
Let me start by saying I can't help with your situation, sorry, but your question has puzzled me, and I have to ask if you are registered as a business? I was under the impression (I may be wrong) that individuals simply paid the higher tax rate when their income rose above that level. I would have thought your accountant would know the answer. Maybe you need a new one?

Self-employed people have to register for VAT if their turnover is more than a certain amount.

Mark E. Cooper

· #5 · Mar 14, 2015

Raquel Lyon said:
Let me start by saying I can't help with your situation, sorry, but your question has puzzled me, and I have to ask if you are registered as a business? I was under the impression (I may be wrong) that individuals simply paid the higher tax rate when their income rose above that level. I would have thought your accountant would know the answer. Maybe you need a new one?

No. As a business, the author it hires (me) gets a salary that the director (me) sets him. I don't give myself pay rises, I'm too lazy and don't deserve one

I always pay my normal rate of tax as I did when I wasn't full time. However, my company also has to pay tax, but at the corporate rate, AND vat registration is mandatory here over (I think) £81,000 VAT taxable turnover (not profit). So it's a juggling match. You can claim back, BUT let's say I need VAT this year and I register, but next year my income falls. I STILL have to pay for the following two years even though I am not earning enough to need it.

The rules is the rules etc. You can't switch it on and off whenever you feel like it. You have to show that you no longer have that money coming in, and you can't do that without two consecutive years of company accounts proving it. Of course, 2 years on, you might be earning it again! So once in, you STAY in, because it's a freaking PITA to manage otherwise.

I believe the OP is correct. The moment turnover reaches £81,001 Blu will get a 20% pay decrease. And don't forget, VAT isn't like income tax. The vat is charged on the entire amount, not the £1 over the threshold as I understand it.

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Mark E. Cooper

· #6 · Mar 14, 2015

oakwood said:
Disclaimer: here's how it works in Sweden, although I'm 99% sure same applies to UK.

One thing that needs to be understood .. VAT is NOT income. It's not even REVENUE. it's a 0-value tax that is supposed to go round and round through the state coffers. No one gets to keep any % of it.

When you reach VAT threshold you can (not MUST.. unless you sell from your own site) register for a VAT license which would allow you to balance incoming and outgoing VAT. This may sound great but only is so if

I have NO clue obviously. BUT there is no may here, it's MUST. The Government doesn't care what I sell in my company, or how much it costs me. They aren't interested in vat on profit. It's turnover. I could spend £50,000 on stuff, but because I bring in £100,000 (just an example people!) The government wants £20,000 off me. Later, I claim back half because I spent £50,000 on stuff.

A quote from my government's website: https://www.gov.uk/vat-registration/when-to-register
You must register when you go over the threshold, or know that you will. The threshold is based on your VAT taxable turnover - the total of everything sold that isn't VAT exempt.

Personally, I don't think I should pay anything at all re VAT, because I don't sell anything. I get royalties (and this is why I insist they ARE royalties, not commission on goods sold)

Mark E. Cooper

· #7 · Mar 14, 2015

oakwood said:
I agree. if you have a company with a turnover over a limit amount you MUST register and pay VAT, same here in sweden. But you CAN sell any sum of products as a private person without registering a company - which would mean you can't deduct almost anything but it's still legal.

Company selling over a limit sum - MUST file at. Private person selling any sum doesn't have to (but ends up loosing of course)

And yes, VAT is on turnover.

Thanks for clarifying. I'm not an expert. Do you think my insistence on calling my income royalties, despite the tide on kboards and elsewhere who insist its not, helps in any way at all?

Mark E. Cooper

· #8 · Mar 14, 2015

oakwood said:
Ugh, I don't know. If you were paid royalties through an agency I would say yes - VAT exempt. But Amazon doesn't pay us royalties and when we sell on our own sites it's certainly not a royalty. I'm not an expert either, so consult with accountant.

FYI UK has one of the worlds highest VAT threshholds here you woud have been hit much earlier.

Anyway.. now that you have passed it, time to save all those recits and start figuring out if you can deduct the VAT on the vacation flight if you manage to call it a biz trip

I keep records of EVERYTHING here. I've been an LTD since going full time, and an imprint since 2001.

Amazon DOES call them royalties. That's my point. I know everyone debates this point, but I WANT to take the word literally for good reason. Here is a line off the KDP dashboard:

View your royalties for the past six weeks.

Julian Bray

· #9 · Mar 14, 2015

this got me googling. According to a start up advice site:

http://www.bytestart.co.uk/vat-registration-when-should-you-register-for-vat.html

the UK self employed DO have to register at the £81k threshold, but can request an exemption if you have a good reason (best read the article).

The whole notion of Amazon charging VAT to the customer but not passing it on to you when you are VAT registered is confusing to me (I have a little knowledge as I have registered a company VAT, but only to get the VAT back as we were winding it down).

If Amazon charge VAT and pay that to the UK government, then you paying VAT on the same sales looks like double dipping by the HMRC.

If Amazon tell you they charge VAT on the sale and can prove they pay that to the HMRC then I guess you have an argument that VAT has been paid on that sale.

Question is, do Amazon actually pass it on to the HMRC or do they have methods of creative accounting that ensure they claim back as much as they hand over. For example, perhaps they claim against the 'royalties' they pay you because you are VAT registered and thus the VAT they paid selling the book they 'bought' off you (at the 70% cover price rate) they want back.

Personally, I think the seller should deal with the VAT. I agree with the belief that you are receiving a 'cut' of the sale, but are not handling the transaction or are not the retailer, and so perhaps you can argue that for the exemption the link above mentions.

I suppose though the HMRC could argue you are selling, as a wholesaler, your book to Amazon, which incurs VAT at 20% (ie: your cut from each sale) and Amazon charge the customer VAT as a retailer.

Interesting topic, and I don't know the answer, obviously, but if ever anyone finds out definitively please post. I may actually try the VAT man myself next week and see what they have to say. if I do I will post back too.

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Leanne King

· #10 · Mar 14, 2015

Bear in mind there is no VAT on sales outside the EU. So none of your sales from Amazon.com (or any of the other US or Canada based sites) are subject to VAT. In the worst case scenario, even if you have to pay VAT at 20% on what Amazon pays you, it's only on sales from the EU stores that will count. However, your revenue from those non-US stores does count as part of the registration threshold. This is how my accountant explained it to me, and I've never paid a penny of VAT on US sales.

BlueGen

Discussion Starter · #11 · Mar 14, 2015

Thanks for all the replies, guys. This whole discussion just reflects all the thoughts I have been having since I realised I would have to register. Still no definitive answer, it seems. But when even the VAT office give differing answers it's really hard to know where to turn. I was hoping someone had found a workaround.

Pelagios said:
Bear in mind there is no VAT on sales outside the EU. So none of your sales from Amazon.com (or any of the other US or Canada based sites) are subject to VAT. In the worst case scenario, even if you have to pay VAT at 20% on what Amazon pays you, it's only on sales from the EU stores that will count. However, your revenue from those non-US stores does count as part of the registration threshold. This is how my accountant explained it to me, and I've never paid a penny of VAT on US sales.

This is a good point, although around 60% of my sales come from the UK, so the bulk would be taxed.

My partner is a photographer and sells images through online image libraries. Companies like Alamy pay his royalties INCLUSIVE of the VAT they have charged to the end user. But it seems Amazon don't have the same set up even though they are bigger than God. I'm no Amazon-basher but that does seem like they are refusing to pay VAT inclusive royalties in order to 'get away with something'.

The worst thought is that I will have to sell thousands more books just to stand still.

But thanks for the intelligent answers

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IntoTheCloset

· #12 · Mar 14, 2015

I had never even considered having to pay VAT unless I sell directly from my website, I just always assumed that the retailer pays the VAT on the products they sell in the country of their operations and the author then pays income tax on his royalties. I guess I'll have to read up on how things work in my particular country.

BlueGen

Discussion Starter · #13 · Mar 14, 2015

Charles C. Bailey said:
I had never even considered having to pay VAT unless I sell directly from my website, I just always assumed that the retailer pays the VAT on the products they sell in the country of their operations and the author then pays income tax on his royalties. I guess I'll have to read up on how things work in my particular country.

Charles, the VAT rules seem to be different for each country. In the UK, anyone with a turnover of over £81,000, whether limited or sole trader, must register for VAT. If you're under this amount, you don't need to register as long as you are only selling through Amazon. Other EU countries have different thresholds. I don't think the US and Canada have this same set up at all…but I could be wrong.

G

· #14 · Mar 14, 2015

I'm foggy with the notion that I AM SELLING anything to Amazon.
I do not invoice Amazon for anything I send them.
Amazon gets my stuff on consignment. Amazon doesn't owe me a thing.
IF the thing sells, then Amazon pays me a ROYALTY because I am an author.

But it becomes muddy because Amazon is sending money to me as a publisher, not an author. So as a publisher, I should pay the royalty to myself out of the funds Amazon sends me.

Muddy enough for you?
Tax people are not our friends because we don't know what the hell they're talking about. And Amazon is holding on to the VAT

Oh, it should be obvious that I'm not from the UK. So I really don't know what I'm talking about.

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IntoTheCloset

· #15 · Mar 14, 2015

BlueGen said:
Charles, the VAT rules seem to be different for each country. In the UK, anyone with a turnover of over £81,000, whether limited or sole trader, must register for VAT. If you're under this amount, you don't need to register as long as you are only selling through Amazon. Other EU countries have different thresholds. I don't think the US and Canada have this same set up at all...but I could be wrong.

This does indeed seem like a tricky subject, varying significantly depending on the country. I looked it up and in my country it would appear that the threshold is a mere 8,500 euros, but I couldn't find any information as to how that applies to sales through an international online retailer like Amazon. The bad news is that e-books count as online services around here for which the VAT is 24%.

However, from the reading I did Amazon does deduct the VAT from your royalties so again I don't see how the author should need to do that since it's already been paid, but then the tax man loves to take all he can so I doubt it's that simple.

Mark E. Cooper

· #16 · Mar 14, 2015

Registering for VAT here isn't the same as PAYING the VAT to the tax man. Registering gives you a registration number. Then your accountant breaks up your income along territory lines (freaking impossible. D2D doesn't tell me where they sell the books, does it? Kobo does, and so does Apple, Amazon, but not Google I think) and then he tells the tax man something like:

"Yes, Mr X did have a turnover of £100,000, sir, but only £2.50 came from the EU. Have a nice day, sir."

Most of my Sales are Audible, and Amazon US.

BlueGen

Discussion Starter · #17 · Mar 14, 2015

Mark E. Cooper said:
Registering for VAT here isn't the same as PAYING the VAT to the tax man. Registering gives you a registration number. Then your accountant breaks up your income along territory lines (freaking impossible. D2D doesn't tell me where they sell the books, does it? Kobo does, and so does Apple, Amazon, but not Google I think) and then he tells the tax man something like:

"Yes, Mr X did have a turnover of £100,000, sir, but only £2.50 came from the EU. Have a nice day, sir."

Most of my Sales are Audible, and Amazon US.

But if you were ever audited (seems to happen to most people at some point) the inspectors would only need to look at your bank statements to see which bits of income came from the EU. Audible tell me nothing about where I have made sales, so I don't know how I'd even get the information out of them.

Mark, can I ask whether you considered registering on the flat rate scheme? You can't claim any VAT back except on purchases over £2000, but you only have to pay 12.5% VAT in the first place. Might be a better option for those who don't buy many Vatable businessy things. I think that might be the way I will go.

Lydniz

· #18 · Mar 14, 2015

I see no reason at all why it shouldn't be possible to register for VAT, then enter zero in the "VAT due on sales and other outputs" bit, since the VAT has in theory already been paid by Amazon.

Lydniz

· #19 · Mar 14, 2015

Julian Bray said:
If Amazon tell you they charge VAT on the sale and can prove they pay that to the HMRC then I guess you have an argument that VAT has been paid on that sale.

Question is, do Amazon actually pass it on to the HMRC or do they have methods of creative accounting that ensure they claim back as much as they hand over.

Whether Amazon does or does not fiddle its VAT is not our problem. If they claim to have paid the VAT relating to our sales to HMRC then in theory we should be in the clear.

scifi365

· #20 · Mar 14, 2015

The simple answer to the OP is 'no'. You won't have to take a 20% cut in income.

When you, as a VAT-able business, fill out your VAT return, you do what is called Reverse Charge on your VAT form.

So, you put the amount you would have received in VAT in Box 1 of the form AND (this is the crucial bit) in Box 4 of the form, which is where you put the amount of VAT you are claiming back.

You'll also have to make sure you put the right totals in Box 6 and 7 to account for the sales/purchase values but basically, the VAT you would have got (had Amazon passed it on) which you put in Box 1 is cancelled out by the fact that you are claiming it all back in Box 4.

I hope this makes sense, but that's how it's done.

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