Working out what you do with a payment from Apple, when you are lucky enough to get one, can be quite tricky for a VAT registered company, this is the information I’ve been able to gather so far, via the Apple Developers Forum (so thanks goes to them)…..
Apple act as an undisclosed agent. You supply your products to Apple (one supply line), who then market and supply them to consumers (another supply line). Apple charge VAT on their supply line, as you’d expect.
Apple’s commission is a markup in the price, which they then add VAT to. This is very important. At no point do Apple invoice you for commission. Because of this, under HMRC rules this isn’t deemed to be a supply of “agency services” from Apple to you (the agency services in question being the marketing and sale of Apps on iTunes). That’s the second supply line – Apple to the Consumer. You can then account for VAT on your supply to Apple as normal. Because you are supplying software to Apple’s EU subsidiary, HMRC’s place of supply regulations mean you’re outside the scope for VAT.
So:
You sell an app for £0.99 (it’s an easy number to use in this example, for simplicity)
Apple charges the user £0.84 (plus VAT)
Apple takes their commission (£0.25), except it’s technically a mark-up on price, not commission.
This leaves £0.59, which is the cost of supply. This is what you would invoice Apple for (even if you’re only generating invoices for your own internal paperwork)
As you supplied your product to Apple for £0.59, who then sold it on at a markup to the public, you were supplying directly to a business, and thus outside the scope of VAT.
Fortunately, the contract you have isn’t with Apple UK, but Apple Sàrl, based in Luxumberg. When a seller in one EU member state invoices a company in a different EU member state they can zero rate the VAT. You should still put VAT as an item on your invoices, but rate it at zero (ie, £0.00). As long as you use the addresses below on your invoices, HMRC should be satisfied.
Really Important point: Because your iTunes income is coming from another member state, you need to declare it in Box 8 of your VAT return. If you have an accountant you don’t need to worry about this, you just need to make sure s/he is aware your App income is from within the EU but outside the UK.
Should you need an address and Luxumberg VAT number for your records, it’s as follows:
Billing Address:
iTunes s.à r. l.
8 rue Heinrich Heine
L-1720 Luxembourg
TVA/VAT No.: LU20165772
Invoicing Address:
App Store Invoicing
Apple Operations Europe
iTunes s.à r. l.
Hollyhill Industrial Estate
Hollyhill
Cork Ireland
I’ve come to much of the same conclusions as you but two points:
Outside the scope of UK. VAT and zero rated are very different. If the supply is outside the scope of UK VAT (as we both agree) then nowhere on your invoice do you mention VAT. Zero rating it is different altogether. This is especially important if you are on the flat rate scheme because zero rated income is included in your flat rate turnover, but outside of scope income is it.
I’m also not surer that this needs to go in box 8 because again, it is outside the scope of UK VAT. What made you conclude that you do?
Looking into this further, box 8 relates to the supply of goods, not services (software is considered a service) therefore i have to conclude that your sales souls definitely not be entered into box 8. In fact, if you are on the standard VAT scheme, then out of scope supplies should not appear on your VAT return at all.
You could be right, I came to that conclusion based on conversations with my accountant and from comments that had been posted on the Apple Developers Forum.
But I’ll pass your comments on to my accountant see what they say.
Its been a real nightmare
I agree that this is outside the scope of VAT, however when calculating the commission you receive from Apple you need to deduct VAT at 15% as this is the VAT rate in Luxembourg. Therefore an app selling at £2.99 (which is what mine is) £2.99/1.15 = £2.60 less apple commission £2.60 * 70% = £1.82 which is the commission I receive from Apple.
Took me a while to work it out – but got there in the end. I know just need to decide whether I include on the VAT return or not!
Well I did include them on the VAT return and I then received a VAT101 form from the HMRC asking for the Apple VAT Number in Luxembourg and how much
Hi,
Thanks for all the useful information.
I’ve been reading on other forums that the split of revenue for apps in Europe is 60-40 as supposed to 30-70 in the US. I assume this is because the VAT?
Should I not assume then that if Apple is paying VAT on my behalf I shouldn’t have to pay again in the UK?
Thanks for your feedback
And one last question,
I’ve developed the app in join venture with another entity. The deal is to share the revenue between us.
I will collect the payments for the app in my bank account and then give him his part of the deal.
Should he invoicing me with VAT for his split of the revenue? or just for his percentage of the gains?
Looking forward to your comments
Hi WAA, sorry but these questions are probably best directed to your accountant?
From a visiting VAT-geek: WAA, assume nothing. As flexicoder’s original article explains well, there are two separate transactions here – Apple/customer (subject to VAT, but that’s Apple’s problem not yours – the VAT Apple charge means that the net price for your commission is less, as Sarah Steel says); and you/Apple. If you are based in the UK and Apple are based in Luxembourg, you should make a note of Apple’s VAT number in case HMRC ask (as they did to flexicoder), but otherwise you just bank the money and don’t put it on your VAT return anywhere – it is “outside the scope of UK VAT”. Joint ventures are another matter altogether – yes, your joint venturer should invoice you plus VAT, but you can recover that VAT as input tax in your VAT return (even though you charged no output tax on the onward supply to Apple – it’s OK). He should invoice you for whatever amount you have agreed between you that he is entitled to – if you are collecting the money from Apple, VAT treats a joint venture as a supply chain rather than a joint transaction. So Apple pay you £10 (outside scope), you have agreed with JV that after costs JV is entitled to £4, JV invoices you for £4 plus VAT. I must develop an app to do this…
Hi,
Thanks for the great info, I was just wondering whether this model applies to Google Android too? I can’t find where they are based (I think it’s Dublin, Ireland) but the premise would remain the same I guess regarding apps?
It seems like google aren’t very helpful when it comes to defining how developers should account for VAT but thanks to numerous calls to HMRC and more importantly posts such as this, I think I have come to the same conclusion as all of you.