What started as a small issue when purchasing a RW8 upgrade has significant implications for anyone who has implemented a Paddle payment system for a UK business
This relates to any UK business where VAT is involved. Paddle is charging VAT on UK Pound (GBP) transactions (as you might expect), but providing an Irish (Eire) VAT number which is Incorrect. UK businesses cannot reclaim VAT from an Irish VAT number. I am not a VAT or Tax expert, but I have several experiences with this problem in the past.
For purchases that are virtual (licences / software), the UK registered business enters a GB VAT number and the VAT is removed from the transaction under the EU regulations.
For example. buying the RW 8 upgrade, the process should be that I enter my GB (or other EU VAT number) and Paddle then charges the net figure. In fact they (incorrectly) charge the price including vat because their location for charging (and their vat number) is the Republic of Ireland.
It may be worth being aware of this for your customers who are using Paddle.
Yes, it works fine for non-UK systems - the problem is the UK GBP transactions and the Irish Republic location for VAT purposes, so the problem affects UK businesses. Paddle are not responding to support requests (which is a pity as they used to be London-based and excellent).
The costs and admin involved only make it worthwhile if the VAT reclaim is multi-thousand GBP - an accountant quoted me a break even reclaim figure of £20,000(!)
Any chance you’ve checked with help@paddle.com on this? If yes, nevermind. If no, then I’m sure they’d have more accurate input than most (if not all) folks here.
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Brian, they were excellent the last time I used them, but it seems that they now have a UK and IE base - with a payment made in the UK, in GBP, the receipt should provide a UK VAT number and address.
Apple used to operate in this way until recently with iTunes ie Irish VAT number - I had a very, very long conversation with the UK VAT officers about it (hence my knowledge) as it was impossible to reclaim VAT on iTunes purchases (which was fine for small transactions, but when they started to sell major applications, it became a major issue - there was £60 of VAT on FCPX!). Interestingly Adobe have always operated their payment system properly.
Because it is a UK transaction in GBP, there should be no need to add a UK VAT number, their ‘tax base’ should be UK (their website says London-based) and their VAT receipt will have a GB **** **** ** number. Because they are charging in GBP, there is no option for adding the number, but their legal tax location is the Irish Republic, not UK.
Because their ‘tax base’ is the Irish republic, the transaction should be handled exactly the same way as when you buy from Germany ie there should be a space for ‘ADD VAT Number’ and, so long as I have a valid VAT number, no VAT will be charged on the transaction. There is a trivial amount of VAT on RW8, but my point is that this could be significant for anyone using a Paddle payment system in the UK.
Because it is a UK transaction in GBP, there should be no need to add a UK VAT number
How else are you going to be able to claim your VAT back? Paddle includes the VAT in the base price (Whether it’s correct or not, you would need to speak to Paddle. Not sure posting here is going to fix it if it’s wrong). There’s an option to enter your VAT number if you’re in the UK anyway.
Because their ‘tax base’ is the Irish republic, the transaction should be handled exactly the same way as when you buy from Germany ie there should be a space for ‘ADD VAT Number’ and, so long as I have a valid VAT number, no VAT will be charged on the transaction.
Again, there’s an option to enter your VAT number.
yeah I was just a bit confused when you said there’s no option for adding the vat number in the UK, but there is. As usual, I’m probably missing the point.
To clarify this, Paddle Payments Ltd is an Irish entity which is reselling the software and therefore if a UK buyer enters a valid VAT number then the transaction will have no VAT on it (cross-border transaction subject to reverse charge). Feel free to email sellers@paddle.com if you need any more info.
Best
Paul @Paddle
Just to add, we are fully compliant with European tax law and take it very seriously - see https://paddle.com/taxes-fraud-compliance/ for an explanation of how we handle tax as Merchant of Record.
Best
Paul @Paddle
As per B2B EU regulations, EU companies must fulfill VAT payment by themselves (that’s called reverse-charge), while Paddle collects VAT regardless customer is a private citizen or a company.
When you are a EU company and purchase goods thru Paddle, first you need to pay VAT-included amount, then contact Paddle support for VAT refund and a valid EU invoice.
yeah I was just a bit confused when you said there’s no option for adding the vat number in the UK, but there is. As usual, I’m probably missing the point.