How to Fight VAT Tax Abuses for Digital Goods

As the digital marketplace continues to grow, so does the number of VAT cases being reported. We outline some ways in which you can minimize these tax burdens and stay within compliance.

There's absolutely no way that VAT is going to work for digital goods. So, if you run a business selling digital goods, then you need to find a solution for VAT. This article offers suggestions on how you can deal with VAT and avoid having big headaches with your taxes. A few issues are addressed such as charging VAT for items that are not taxable and registering for VAT when your company is not actually required to do so.

How to Fight VAT Tax Abuses for Digital Goods?

In the United Kingdom there are rules governing Value Added Tax (VAT) which is charged on the sale of goods and services in order to fund national welfare programs. Whilst most businesses will use this as a percentage of their turnover, they need to be aware that there are certain items which cause more complications than others where tax applies.

The first thing to note is that the VAT rules for digital goods are slightly different from physical ones. In particular, items sold by retailers on their website are considered to be sold through a business as a retail trader. This means that it is subject to the UK's VAT rules.

Another thing you should know about is the differences in VAT rates for different sectors of the UK economy. Whilst most people believe there to be one rate of VAT, the reality is that there are nine different rates depending on what industry you're operating in and your location. For example, there's a zero rate for food, which applies to the majority of UK businesses, however, there are also specific zero rates such as alcohol and books.

So what can you do to avoid VAT charges?

This depends on the type of goods you sell. The first thing you should do is look at whether you are eligible for a zero rate. For example, if you are selling books, then in the UK you may be eligible for the zero rate so that you do not have to charge VAT on your products.

If this isn't possible and you are selling physical products for which there is no zero rate, then your next best bet is to register for VAT exemption if you are eligible.

If registering for VAT is not an option, then you need to be aware of the various tax rates. As mentioned earlier, there are nine different rates that you have to look out for. The problem is that these different rates apply to different sectors in the UK economy so it's difficult to check online to see which rate applies to your business.

If you're not eligible for either of these, then your only option is to start charging VAT if you have a VAT registration number and if you actually run your business as a retailer rather than a producer. You can find the full list of registered retailers at the UK Government Website.