VAT

VAT is a complicated mess.

In general small businesses don't register for VAT. There is no need to register until your turnover is £81,000 (at time of writing).*

However new EU rule changes now mean that if you make ANY cross border digital sales to consumers you must account for VAT on those sales.

In practice, if you are affected, you must seek professional advice.

Flat Rate Schemes - these allow VAT registered businesses to charge VAT at full rate, but only pay VAT at a lower one (10-12%). This is def "talk to your accountant" territory, but if you suddenly find that you are losing a lot of money to VAT on sales then even if you are not at the VAT threshold, it might be worth registering. Video production gets a flat rate.

HOWEVER

If you sell through a third party that takes the payment, then the VAT issue becomes their problem, not yours.

This is probably the most sensible option for people who are not VAT registered and don't want/need to be.

UPDATE - at least that's what I thought. This article suggests that the VAT people might come after you if your chosen platform decides to ignore the issue. See an accountant. https://webdevlaw.uk/2015/02/04/patreon-to-europe-on-vatmoss-not-our-pro...

AW and VAT

Read what follows bearing in mind that I am NOT an accountant, but do have to deal with VAT in my mainstream business, and made enquiries of the UK VAT people re treatment of a revenue splitting clip selling/camming site that I wanted to launch a couple years back. (Didn't partly because of ATVOD and partly because couldn't compete against a site that didn't seem to charge VAT).

A lot of service providers are complaining that AW is charging VAT on their services even though the service provider is not VAT registered. A lot of the rest of us wondered why AW hadn't started charging VAT years ago :-)

  • If your turnover exceeds the local VAT threshold, then VAT is due at point of sale on the gross value of sale. Starting point for all VAT law. Let's assume that AW has a turnover safely in excess of the VAT threshold :-)
  • AW is registered for VAT in Cyprus, so they will be bound by what their local VAT office has told them. This might not be the same as the UK rules.
    • AW Help states that they have been told that they can't charge VAT at point of purchase of credits, but only when the credits are spent.
    • AW Help states that they have been told they need to apply VAT irrespective of VAT status of provider as they do not meet the criteria that would exempt them from this rule. (Note that I had a similar chat with UK VAT people).
    • AW Help states that AW is adding VAT at the rate applicable in the buyers country. I believe this to be correct.
    • AW Help states that (though perhaps not as clearly as it could) that while you get credited the same amount of money per sale (the net of VAT price) your actual income is reduced because when AW takes their admin fee, they need to pay (i.e. collect) VAT on it. (Note, I have seen comments that they may have stopped this. If they have, it's probably because they have decided to take the hit themselves, NOT because they have found that they don't need to charge it. I.e. instead of keeping 30 plus VAT of 5, they are keeping 30 and sending 5 to the VAT man, so AW is only getting 25).
    • AW Help says that IF you are VAT registered then reversal rules can be used. Not an area I've dealt with, but could be very useful even if you are not yet registered but in doing so you could benefit from a Flat Rate Scheme. Talk to your accountant if you are making more than a few K pa from AW, def if over 20K.
    • AW Help implies that ALL AW/Provider relationship are B2B and that the B2C relationships are between AW and the client, NOT the provider and the client. I would agree with this, (because the money is routed via AW and the provider lacks the data to comply with the Digital Sales rules). Note that this implies that a Uk cam show to a Uk client is a cross border sale for VAT purposes because the B2C relationship is between a Cyprus business (AW) and a Uk client.
    • HOWEVER SEE ALSO this article written by an accountant - How to stop AW adding VAT to their fees
  • In summary, AW seem to have been told to account for VAT on everything, and have now set up to do so.

Personal story, I looked at setting up a camming/clip site and talked to our VAT people. Result :-

  • My fees to service providers, (e.g. for ad placement and promotion, phone number listings etc) - I'd have to charge VAT
  • Cam shows or clips. I'd probably have to charge VAT. "Probably?" you say. Yep. Because I have been given multiple answers from the VAT inspectors when I explored offering exactly this service. Some said I'd need to charge VAT on the gross, others said I'd only have to charge on my commission. The only way to find out for sure would be to build the site and seek a formal ruling from the VAT office. While I awaited such a ruling I'd charge VAT on the gross because otherwise I'd be under-reporting VAT and that would lead to a world of pain.

Your next steps - assume AW are correct, talk to your accountant about your options, but if a Flat Rate Scheme is available, you might get something back.

TBH if you think AW are wrong, they can just say "like it or find another platform. Oh, there isn't one with our traffic? Your call. Our rules "

IF you really want to get an expert opinion, you need an account who has expertise in Cyprus VAT law. (The fact of adult is irrelevant, this is all about VAT). Lots of Cypriots in London. Probably some accountants that know Cyprus VAT law in London. Note that getting an opinion, even if it agrees with you (e.g cam shows are not digital sale, AND AW needs only collect VAT on it's share of revenue where the performer is not VAT registered) doesn't mean that AW will change their mind, (though it might get them ask for a formal VAT adjudication if they don't have one already).

*Though a lot of girls who cam, escort and sell content are turning over £81K+ and should be VAT registered.