As a business based in the European Union we know a thing or two about location-based tax and Perch Shop aims to give you the tools to comply with whatever tax rules you need to.
In this post I’ll give a rundown of some of the things that we’ve built into Perch Shop to enable you to meet any requirements for charging and reporting on purchase tax such as VAT. None of this should be taken as tax advice other than to give you the advice that you should:
- speak to your client to find out how they want to approach purchase tax in their store
- verify everything with an accountant (or get your client to do so)
I’d suggest that designers have in their contracts something that puts the onus on the client to check that things like invoices are correct. You are probably not an expert in this stuff, so should build what you believe to be correct but then get the client to approve and sign off on it.
So we can’t give you tax advice but we can build you tools, and we have built you a whole bunch of tools!
We have also tried to build these in a way that still gives you the flexibility to build checkout flow in an elegant way, and fully template everything – right down to those pesky VAT Invoices. Just because it is boring, doesn’t mean it has to look bad.
Sequential invoice numbers
Some systems use what is essentially the database ID for the order number. This often means that your invoice numbers skip any orders that didn’t complete (because the customer abandoned checkout for example). If you have a requirement to do sequential invoice numbers that is a problem. So Perch Shop invoice numbers are separate and you can also prefix or suffice them with a string as required. A number should only be generated on successful payment.
In the EU certain products have to be taxed at the buyer’s location. For example, if you are in Germany and buy a copy of Perch you are charged German VAT as is correct for a digital product like software. We have build this capability into Shop.
Furthermore it is not tied to just EU locations. If you are required to charge VAT or purchase tax to any other country you can just set it up as a location in the Shop Admin.
Multiple tax rates AND multiple locations in one cart
If you take a very basic approach to tax, you might think that you could simply apply the tax percentage to the entire cart. That isn’t the case. Take for example the following scenario (assuming pricing ex-VAT).
- I run business in the UK
- I sell physical Books (0% VAT at Store location), t-shirts (20% VAT charged at the Store location) and e-books (VAT at the Buyer Location).
- I sell a Book, a t-shirt and an e-book to a buyer in Germany
- I need to add no VAT to the physical book, 20% VAT on the t-shirt, and 19% German VAT to the e-book.
- I also want to be able to show the amounts charged line by line in the invoice, not as one amount.
Perch Shop can do all of the above.
Prices shown inclusive or exclusive of VAT
You might want to show all your prices including VAT of course and work out the amounts in your accounting software. That’s fine too (and often the preferred choice for stores selling only to consumers).
Collecting of VAT evidence
The EU VAT rules for digital services mean you have to collect details of why you charged a certain rate of VAT. We collect the IP address and address of the bank card (as long as the gateway hands it back). You can ask for a customer address, or get them to confirm a location as required – that’s up to you.
EC Reverse Charge rules
If you are VAT registered in the EU and selling to a customer in a different member state who has a VAT number you can charge them ex-VAT and then they account for the VAT under the Reverse Charge Rules. We have allowed for this scenario.
Display tax charged in home currency
You can add your reporting currency and exchange rates for other currencies you accept in order that invoices can show the amount of tax charged in your reporting currency. This is a requirement for UK VAT invoices and probably others too. Often people selling digital products worldwide price in USD, rather than their home currency of GBP or Euro, however they still need to report the VAT taken against a published exchange rate. So we’ve made that a possibility.
Supporting you, supporting your clients
The EU VAT rules have been a constant source of trouble for many small businesses like us at Perch. However as we have had to cope with the regulations we at least have been able to gather real implementation experience. This will be passed back to Perch customers who should be able to cope with whatever their local tax system throws at them when using Perch Shop.
It is in these fine details that a lot of systems start to show their limitations. You end up having to hack around the problem. Find yourself asking customers to do things like make multiple purchases to cope with different VAT rates; wind up providing VAT invoices offline making an extra step for the store owner.
Perch Shop is very close to launch now, we’ve had over 100 people testing the Beta/Gamma and there are a number of live shops up and running. You can see just from this post the amount of work that goes into launching something like Shop, we are sure it will be worth the wait!