Anybody VAT registered?

I know, I know. We've done VAT to death. However, this thread isn't going to be me saying how unfair it is, how it shouldn't apply to me, etc. It's really more about the practical aspect to it.

My business doesn't currently come too close to the threshold for becoming VAT registered, but it's not too difficult to imagine it will be an issue at some point during the next year. Therefore, going with the principle of being forewarned etc, I decided to investigate exactly what it would involve.

I was wondering, basically, what people who have registered for VAT do about L$ transactions? I know LL have said they aren't subject to VAT, but I can imagine that means that LL simply don't look after the VAT involved there. The HMRC site quite clearly talks about payment-in-kind, and I can see L$ payments to a business coming under that definition.

If people are recording and reporting L$ transactions for VAT purposes, what do you do about determining the location of the customer? The HMRC site talks about self-declarations by customers, but also wants proof (such as shipping addresses, billing addresses, ip geo-location and telecoms providers), none of which are available to me in SL.

Any pointers would be great, thanks.

(Oh, and I know - I'm not expecting this to take the place of advice from a professional tax consultant and/or accountant.)

Edit: Sorry, should have said - I'm in the UK

As far as I'm aware the current position is that purely in-SL businesses _can't_ VAT register, precisely because of the doubtful status of L$ transactions as VATable, and the inability to identify European customers to charge them VAT. VAT registration is largely for European MDCs.

That is basically what Zee hinted at. LL doesn't need to care about VAT on resident-to-resident L$ transactions, but any VAT registered business that has earnings in L$ in-world from EU citizens should make sure it's complying with the tax laws.

(Not very helpful in your broader question, but thought clarifying that might be helpful anyway )

Well, the HMRC website does give an example of payment-in-kind, which would suggest me to believe that they would treat L$ transactions in that way. The example involves an electronics store owner getting a friend to do some repairs, in exchange for giving him a radio. The value of the radio must be recorded as the cost of the work done, and is hence subject to VAT at the normal rate.



Yes, I figure if I assume the taxman will want his cut I'll be in a better position than if I assume he doesn't. And I guess he won't let a little thing like it being impossible get in the way

Interesting question, Stephen. I just did a rough calculation and, assuming a 20% gross profit margin, you would need to be holding - or aim to hold - around 25 islands before hitting the VAT threshold. (If you had no profit margin whatsoever, it rises to 31 islands.)

What will be important is how your business is understood and I think for that you really do need to get hold of professional advice. You could always try the HMRC National Advice Service as well - it's free. http://www.hmrc.gov.uk/menus/contactus.shtml

Inc

Hitting the VAT threshold isn't the issue, though: the issue is having to _pay_ VAT on your supplies.

If you own just one island, you are far below the VAT threshold on profit, but Linden Labs will charge _you_ VAT on the island tier, meaning you pay US$346 and cannot compete with an American landlord who has to pay only US$295 for the same tier.

Since you are below the VAT threshold, you don't _have_ to register, but you can _choose_ to if you want to. In that case, you are spared VAT on your supplies, meaning that you need pay only US$295 for your island, and can sell to US customers at the same price as a US landlord could. However, as part of being VAT registered, you have to agree to change VAT to EU customers, so you would have to charge them extra on their rent. Unfortunately, in SL at the moment, you can't do this, because SL will not give you any real world information on your rental tenants, so you cannot possibly know if they are European or not.

(Although in practice, this would probably be moot, as the European renters would simply go to US landlords, who technically have the same obligation to collect VAT but for whom it's almost impossible to enforce.)

Quite frankly it would be nigh on impossible. How on earth are you going to be able to find out who lives in the EU and who doesn't?

Yes, that's roughly where I'm expecting it to become an issue. I'm not there yet, but I want to be ready for it if/when I am.

I'm guessing that there's at least a couple of sl-only business owners in the EU who'd have registered for VAT, so I was hoping to pick their brains a little before going any further

I think you might need to consider the paypal route to comply with laws on this.

Urgh, I sincerely hope not!

what happens if you register for vat and never collect vat because seemingly none of your renters are european?

Good question. I suspect they would soon get upset at me not paying VAT on my tier and also not paying any collected from customers, without proof that they aren't European.