Is anyone using the same ltd company for App Store trading and contracting?

[Zuokas]

Dear Contractors,

Just wondering if anyone uses the same ltd company for contracting and selling their apps on App Store, Google Play, Kindle Store?
If yes how does that affect the accounts?
Any other problems, issues or disadvantages?

Cheers!

[TheFaQQer]

If your Ltd is VAT registered, then you'll need to factor that 20% into your pricing.

It's a sale, so you record it in your accounts as a sale, same as any other.

[Martin at NixonWilliams]

Dear Contractors,

Just wondering if anyone uses the same ltd company for contracting and selling their apps on App Store, Google Play, Kindle Store?
If yes how does that affect the accounts?
Any other problems, issues or disadvantages?

Cheers!

We have a growing number of clients operating this sort of thing. The main issue is VAT for overseas customers, although record keeping can also be a difficulty.

A direct sale is likely to be to an individual rather than a business. In this case VAT must be charged to overseas customers as per the place of supply rules.

If an app sale is made to an overseas business, it will be treated as a supply of services rather than goods. In this case no VAT would be chargeable as it would be outside the scope of VAT.

To summarise, as you are selling the app via an agent (google etc.) then you are supplying to a business. Sales to UK customers will contain VAT however sales to overseas customers will not.

I hope this helps.

[Zuokas]

We have a growing number of clients operating this sort of thing. The main issue is VAT for overseas customers, although record keeping can also be a difficulty.

A direct sale is likely to be to an individual rather than a business. In this case VAT must be charged to overseas customers as per the place of supply rules.

If an app sale is made to an overseas business, it will be treated as a supply of services rather than goods. In this case no VAT would be chargeable as it would be outside the scope of VAT.

To summarise, as you are selling the app via an agent (google etc.) then you are supplying to a business. Sales to UK customers will contain VAT however sales to overseas customers will not.

I hope this helps.

Thank you Martin.
Could you tell me if the following example is correct:

Say an app is sold for £1.

A foreign customer buys it (lets ignore the exchange rates) and pays £1 to the App Store.
App Store then would charge 30% and transfer £0.70 to the company account. And this is a profit. No other fees?

UK customer buys it and £0.70 gets transferred to the company account. Then 20% (£0.14) must be deducted to VAT.
And what is left £0.54 is a profit?

[Zuokas]

If your Ltd is VAT registered, then you'll need to factor that 20% into your pricing.

It's a sale, so you record it in your accounts as a sale, same as any other.

TheFaQQer, are you applying 20% VAT to all customers or UK only?

[Martin at NixonWilliams]

Thank you Martin.
Could you tell me if the following example is correct:

Say an app is sold for £1.

A foreign customer buys it (lets ignore the exchange rates) and pays £1 to the App Store.
App Store then would charge 30% and transfer £0.70 to the company account. And this is a profit. No other fees?

UK customer buys it and £0.70 gets transferred to the company account. Then 20% (£0.14) must be deducted to VAT.
And what is left £0.54 is a profit?

Hi Zuokas,

Yes, the £0.70 in your first example would be profit and subject to Corporation Tax as normal.

If a UK customer buys the app you would normally charge VAT on top of the £1.00, so you are left with £0.70 as with the first example.

I hope this helps.

[VectraMan]

If the app store is a foreign business, then does it matter where the end customer is? I.e. UK customer buys from US app store, which is a foreign business so you don't charge VAT. Do you even know where the end customer is?

[Martin at NixonWilliams]

If the app store is a foreign business, then does it matter where the end customer is? I.e. UK customer buys from US app store, which is a foreign business so you don't charge VAT.

It depends really.. there seems to some kind of differentiation between selling your app to an agent for them to sell on, and them facilitating the sale for you.

The reason I say this is because I have seen some where the app store business has effectively cut themselves out of the picture altogether by gathering details of the end customers location and charging VAT to the UK customers only.

However, in other cases (google being one of them), I have seen agreements where it is treated as a business to business sale, VAT has therefore been ignored as it is a supply of services to a foreign business. Google would then sell the app and account for the VAT accordingly.

This sort of thing really isn't straightforward. I would advise all contractors looking at doing this to speak with the agent selling the app at the outset, and check the terms of the engagement carefully to ensure the VAT is being treated correctly.

If you are not selling through an agent, for example if the app is sold direct from a website, it is equally as important for you to make sure that your payment system accounts for the VAT correctly.

I hope this helps.

Martin

[Jog On]

I am in a similar situation selling digital products through Clickbank. My agreement with them is that they sell to the end customer and my LTD sells to them. because of their location (US) they are not liable for VAT.

Selling to individuals through my website via paypal is different but there are settings for paypal buttons where you can add VAT. It get's very complicated for different countries and their VAT rates so that's why I'm going the clickbank route.

[TheCyclingProgrammer]

If your Ltd is VAT registered, then you'll need to factor that 20% into your pricing.

It's a sale, so you record it in your accounts as a sale, same as any other.

Not necessarily. If you are trading on the App Store, Apple act as an undisclosed agent and there are two supplies to consider. There is a B2B supply between you and Apple that falls outside the scope of UK VAT and the onward sale to the person who buys the app is between Apple and the consumer (Apple charge and account for VAT on this supply).

I can't comment on other app stores but would imagine a similar arrangement is in place.

Edit: I see Martin has largely said the same thing. I can confirm that this is the case with the Apple App Store. Check your App Store agreement for details. I spent a lot of time looking at this when I had an app in the store.

The legal entity that acts as your agent differs from region to region. Outside the EU, it could be Apple Inc (US), Apple Japan etc. All of these supplies from you are automatically outside the scope of UK VAT.

The only potentially tricky point is sales in the UK and EU. I this case, your agent is Apple SARL, based in Luxembourg. According to my interpretation of place of supply rules, a B2B supply of services (which is how software is treated) is outside the scope.

The way Apple treat their 30% cut is not as a "commission" (which they would have to bill you for). Instead, the cost of the supply from you to Apple is considered to be 70% of the price (excluding any local sales taxes) charged to the end customer.

I do believe this means that if an app is in, say, the UK store, for 99p, then this is inclusive of VAT. So you, the developer, will actually receive 70% of the ex. VAT price, not the advertised price. Bear that in mind.