Yes, royalties are normally subject to VAT, but the VAT treatment depends on your circumstances. EmuBands act as a principal for VAT purposes, and the place of supply for all royalties is the United Kingdom.
Your circumstances should fall into one of these three scenarios:
1. If you are in the UK, and are registered for VAT:
VAT is applicable at Standard Rate of 20% and will be added to your self-billing invoices, subject to you having a valid self-billing agreement in place. It should be noted that any VAT disclosed on the self-billing invoice is YOUR VAT to account for, to the UK Tax Authorities (“HMRC”) via your VAT return which you are to complete.
2. If you are in the UK, but are NOT registered for VAT:
VAT is not applicable on your royalties from EmuBands.
3. If you are outside the UK
When EmuBands pays you royalties, it is considered a ‘B2B’ (business-to-business) transaction, and the ‘Place of Supply’ is considered to be the UK, rather than your own country. This is because the UK VAT rules state that for supplies of B2B services, the ‘General Rule’ is applicable and therefore the Place of Supply is taken to be the location of the Customer, and not the location of the Supplier. In these transactions, when EmuBands pays royalties to you, you are the Supplier, and EmuBands is the Customer – you are making a sale, to a UK-based entity.
Because of this, if you are outside of the UK, EmuBands will account for VAT to the UK Tax Authorities (‘HMRC’) via what is called the ‘Reverse Charge Procedure’ – this, however, will not affect the amount that you receive from EmuBands. With the ‘Reverse Charge Procedure’, effectively EmuBands charges itself the relevant VAT amount but also reclaims it from HMRC (with a net-zero effect).
This ‘Reverse Charge Procedure’ applies when:
– You are in an EU Member State and are registered for VAT
– You are in an EU Member State but are not registered for VAT
– You are outside of the UK and the European Union
You should, however, check with an expert in your own country as to how any sales taxes, transaction taxes or income taxes might apply to these transactions.
To clarify:
If you are based in the UK, are VAT-registered and complete the relevant Self-Billing Agreement, then we will pay VAT on top of your royalty earnings from EmuBands.
If you are based in the UK and are not VAT-registered, then VAT is not applicable to your royalty earnings from EmuBands.
If you are outside of the UK, we will neither add VAT nor deduct VAT from your royalty earnings from EmuBands.
VAT can be a complex and confusing area of tax, and should you require any specialist advice relating to your circumstances we are happy to recommend (to UK residents) The VAT Helpline Ltd (https://thevathelpline.com).
Disclaimer: This information is true as at and from 1st January 2021 onwards. Do not take any advice given here as official legal, tax or accountancy advice. Always consult a qualified expert in your own tax jurisdiction for proper advice.