A beginner’s guide to VAT
Over the past year VAT has become a big topic in the crowdfunding space and today I’d like to share my experience and help make sure you get it right.
Please keep in mind, I am not a financial advisor or legal professional and everything in this article is my personal opinion. It is designed to give you an idea of what you need to do but you should always seek out a professional opinion.
What is VAT?
VAT stands for value-added tax and is sometimes referred to as a goods and services tax.
In the UK and EU, VAT is included in the label price of items meaning the price a customer sees on a label is how much they will pay at the till. This differs to the US where many taxes are added at the checkout.
If you plan to sell into the UK and/or EU, then you will want to register for VAT and charge it in your pricing.
Registering for VAT
There are up to 3 different registrations that you will need to do:
- If you wish to sell into the UK, you will need to register for VAT in the UK.
- If you wish to sell into the EU, you will need to register in 1 country in the EU and then additionally register for the One Stop Shop (known as OSS).
While the country you register for in the EU can be any country, I personally choose to register in Germany because this is where I store my stock. This works well for me as it’s a big market in the EU and where Essen takes place (one of the largest board game conventions in the world).
I would recommend registering in the country your fulfilment partner is based in as this is where you will store stock for this fulfilment, and perhaps for direct sales when you grow.
Before choosing a country, it is worth talking with your VAT accountant if there are any other considerations for your situation. It is also worth noting if you are based in the EU then there may be additional rules for your country of residence which you will need to ask your accountant about.
Finding an accountant
There are plenty of options for accountants and you may wish to use different accountants for each type of VAT, you should do your research and work out who is best for you.
I personally work with SimplyVAT for my Germany and OSS VAT requirements and TMT Accounting for my UK VAT requirements.
However, I choose to work with TMT Accounting as they also manage my other tax requirements as I am a UK company. If I was not based in the UK, I would likely just work with SimplyVAT on all 3 returns as they offer a good service and it’s a lot easier to manage everything through one company.
Frequency of returns and costs
The frequency of my VAT returns is as follows:
- UK VAT – Quarterly
- German VAT – Monthly
- OSS VAT – Quarterly
This means once a month and twice every quarter I must provide the relevant accounts to my accountants to process.
I have been informed the German VAT return may eventually change to a quarterly return once I have filed enough returns without missing any deadlines, but there is no guarantee this will happen.
At present, I pay around £350 // $450 a month which covers all 3 of the returns.
In addition, there were some one time registration fees which cost around £500 but please note I did register a long time ago and they may now have changed.
A healthy mindset
Before I go any further, I’d like to talk about keeping a healthy mindset as there is a very common question that comes up when it comes to VAT.
Let’s say you register and start filing monthly returns, your Kickstarter sales will all come through in one return and from then on you may be filling reports of £0/month.
- January: £35,000 (Kickstarter money)
- February: £0
- March: £0
- April £5,000 (Pledge manager money)
- May: £0
- June: £0 and so on…
As this happens, you realise you’re paying £350 a month to file a £0 report and this can feel bad.
I recommend using the mindset of:
It costs me £4,000 // $5,000 a year in order to be able to sell into the UK and EU and I am required to pay that in monthly instalments.
While it doesn’t change how much you are paying, it feels healthier to consider it all part of the cost of the Kickstarter, rather than losing money each month for doing nothing.
When to register
I recommend getting advice from an accountant on the best time to register, but personally I chose to register during my Kickstarter once I knew it was going to fund. It can take varying amounts of time to register depending on the time of year and you will need to be registered prior to your goods leaving China so you can reclaim import costs.
You can unregister from VAT and will need to do this if you choose to close your business. If you plan to only run one Kickstarter and will not continue sales in the UK or EU afterwards, you may want to look into cancelling once fulfilment has completed.
However, if you plan to continue selling products and running other campaigns then you will want to stay registered.
The benefits of being VAT registered
At this point many people start to worry and that’s understandable, you’ve got a whole bunch of accounts to file each year and a big outgoing bill. But don’t worry, while being VAT registered is a legal requirement and that’s a good enough reason to do it, there are also other benefits!
When you ship goods from outside of the UK/EU into those regions, you will be charged customs fees at import based on the manufacturing value.
For example, if you have a container coming from China to the UK and the contents of that container cost you £20,000 to print, then you will be charged £4,000 when it enters the UK.
This £4,000 would have to be paid regardless of you being registered or not, but as you are registered you will be able to reclaim this money in your next tax return. Meaning, while you do pay the £4,000, you will get it back and effectively have just saved yourself £4,000.
This is a huge benefit for being registered as it saves you losing the import fees.
Additionally, remember I mentioned that VAT applies to both products and services? Well, this means any UK and EU companies you work with will likely charge you VAT on their services. If your UK fulfilment company charges you £10,000, they may add another £2,000 in VAT which you will need to pay. This works just like the importing, where any VAT you pay as a business you will be able to claim back later.
To summarise, while paying £4,000 a year to file returns may seem like a lot, there are also a lot of savings you’ll be getting at the same time.
I don’t want to get too distracted from VAT, but as I mentioned about reclaiming the import fees I do want to touch on EORI numbers.
An EORI (Economic Operators Registration and Identification number) number is what is required for you to import goods into the UK and EU and to be able to reclaim the VAT.
When you register for VAT in the UK and EU, you must tell your accountant you also want a UK and EU EORI number (so you’ll get two of them). You will then provide this number to your shipping partners when they arrange to import your goods.
With everything setup, we now need to focus on charging VAT to our customers so we can afford to pay our VAT bills.
In your VAT return you will declare every sale you have made into the region (UK/EU) and will then be asked to pay VAT on those sales.
For example, if you have sold 10 games into the UK for £60 each, your total sales will be £600. If this was your VAT return, you would then be asked to pay £100 as your VAT bill (VAT in the UK is currently 20%).
Meaning 20% of all the money you make in the UK will go to the tax man and you must account for this in your pricing.
The value of VAT is currently 20% in the UK but it does change from country to country in the EU, some countries charge a little less and some charge slightly more. These values do change so I wont list them all here, but you can find the current % online and your accountant will also be able to supply them.
VAT may seem scary at first but don’t let it overwhelm you as it’s very easy to manage once you are aware of it.
- Find an accountant and register when you need to.
- Get both VAT and EORI numbers for the UK and EU.
- When you sell products to a country make sure you include the required amount of VAT.
- When you import into the UK/EU make sure you do so under your own EORI number.
- When you purchase something in the UK/EU, make sure you include it in your VAT return so you can reclaim VAT spent.
Your accountant will always be there to help answer any questions and don’t be afraid to ask a lot up front, it’s better to start prepared than find out you did something wrong when it is too late.
I hope this article has proved helpful and if you have any questions feel free to ask them below.
Frank West is a gamer and designer based in Bristol, UK. He published his first board game, The City of Kings, in 2018 and now works on other games and organising events in the local area. His goal? To design and publish games focusing on immersive themes, fun mechanics and beautiful components. If you have any questions or would just like a chat, feel free to get in touch at any time!
3rd May 2022 at 3:01 pm
Thanks for this Frank, this is SUPER helpful. A lot of first-time publishers don’t realize the monthly costs of VAT returns, and I know for my company this was a huge mystery on whether we were doing things right, or even doing things smart–especially with the laws constantly evolving.
I just want to note for any other publishers looking into SimplyVat for the first time: they are helpful, but not all Client Reps are the same. We got a client rep to our account that couldn’t answer any of our questions. It took a year of frustration to finally get a new client rep–and now we’re very satisfied. Don’t wait as long as we did to request a more experienced representative! PS: the original rep on our account has left the company 😛
Your article and advice really helped us understand the process–thanks again!
3rd May 2022 at 3:54 pm
It’s my pleasure Rachel and I’m glad to hear the article is useful! It’s a shame your first rep at SimplyVAT wasn’t great but I am glad to hear they have since left and you’ve found a better one! They do have a fair few staff and I think your advice on making sure you get a good rep for your own needs is worth noting!
3rd May 2022 at 7:35 pm
Thanks for sharing this Frank, opened my eyes to a whole new side of things. What sort of timescales would you recommend for completing these steps in relation to launching a Kickstarter campaign?
3rd May 2022 at 7:41 pm
I’d certainly recommend reaching out to accountants and working out who you want to work with before launching your Kickstarter and checking with them for the current estimated registration time. They’d probably give you a good idea of when you need to register too but personally, I registered during my Kickstarter once it had funded as this was the point I knew I would need to do it.
4th May 2022 at 8:27 am
Thanks a lot Frank
20th May 2022 at 9:45 am
Great stuff Frank! I have been running 3 campaigns so far but they were in the old days so our upcoming campaign in the fall will be our first with the new VAT rules.
Can you talk a little bit about charging VAT through the pledge manager? Do you do that directly after the campaign? And then charge shipping (+VAT on the shipping)at a later stage? How is the general reception of the backers to the added VAT in the PM?
20th May 2022 at 11:56 am
Hi Petter, I’m glad the article was helpful!
You will want to charge people VAT and Shipping at the same time in the pledge manager, adding an extra charge step (just VAT, then just shipping later) will result in more people making mistakes. Most backers are used to making 1 payment afterwards, so if you split it into 2 payments you risk more people thinking they’ve already paid it and ignoring the second payment. This will also help lessen the blow of having to pay VAT, as charging just the VAT brings everyones focus to it and it’s best to avoid that.
Typically speaking, backers who need to pay VAT prefer to pay it as part of the campaign. Unlike the US, UK/EU citizens aren’t used to paying tax afterwards and VAT for the most part is a hidden tax in our day to day lives. However, it is becoming standard to charge the VAT afterwards in crowdfunding so I wouldn’t be concerned about doing it. Just make sure you clearly mention this is your plan on your page (I recommend in the same section as your shipping costs) so people are made aware in advance.
Good luck with your upcoming campaign!
23rd May 2022 at 9:03 am
Keep up the great work.
27th January 2023 at 8:51 am
thank you for your article, it was really helpful to understand how VAT works.
Just one question regarding EU and UK VAT accounts. If I have to ship my reward to both European Countries and the UK, can I do that by just opening one EU VAT account and handle all shipping (included the ones for UK) or do I need to open a dedicated UK VAT account as well?
Also, can I use just one fulfilment company in Europe and handle both EU & UK shipments or do I need a dedicated fulfilment partner for the UK market? (sorry if this last question is a bit off topic).
Thanks a lot for your advice!
27th January 2023 at 11:56 am
To my understanding, you will need to be registered in both the UK and EU, but please do check with a tax agent.
For fulfilment, if you ship products from within the UK into the EU, or from within the EU to the UK, your customers will be charged substanstial taxes and fees and it should be avoided. Some fulfillment companies offer services around this (where you can pre-pay those taxes) but you would need to ask those providers directly.
For reference, currently I am registered for VAT in both the UK and EU, and I fulfill from the UK and Germany.
I hope this helps!
27th January 2023 at 5:59 pm
Thank you Frank for the quick and spot-on reply, highly appreciated!!
Have a great week-end,
27th February 2023 at 9:18 pm
Do you have any suggestions on how/if to pass along those costs to your customers? For example, I am based out of the U.S, if I am shipping to the E.U./U.K, do you have the same price across all offerings, does that count as shipping/handling, etc?
Thanks for a great article!
28th February 2023 at 10:47 am
The perfect solution is to have the VAT included within the price tag for UK and EU customers. While in the US people are used to sales tax being added at the till, people in the UK/EU typically expect VAT to be included and will more surprised to pay extra at the end of the process.
How you achieve this will very much depend on your setup and platform but it should very much be passed onto the customer.
If you are crowdfunding via gamefound they actually have tools for this built in for you.
If you are crowdfunding via Kickstarter, you’d need to collect the VAT afterwards using a pledge manager.
If you are selling directly through a website store, then the software you use may have an option. Otherwise you could look at setting up 2 different stores.
I currently run shopify and have a US/CA store and a UK/EU store which have different prices for the products as the UK/EU store includes VAT.
I hope this helps!