I'm having a major problem trying to find out how tax and VAT works when it comes to selling software. I believe new legislation has come in regarding how it all works.

I am based in the UK and want to set up a limited company for my new software venture. I will be selling software from my own website, to customers worldwide, and will be registering for VAT immediately.

Can somebody give me a quick explanation and/or point me to a resource that explains how it all works? Do I have to charge VAT on all EU purchases, and then give that VAT to the respective country? Then say 100% of my clients are from Germany, how do I claim back VAT on purchases if I have paid no VAT to the UK?

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    Limited company = get a tax advisor. Limited company + VAT + trading with foreign countries = really, really get a tax advisor. – gnasher729 Sep 29 '14 at 2:04
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    This question appears to be off-topic because it is about corporate/VAT taxes and not personal finance. – littleadv Sep 29 '14 at 3:12
  • Go here hmrc.gov.uk/vat and check for yourself. And get an accountant pronto, as suggested earlier. – DumbCoder Sep 29 '14 at 8:08

Not sure where the confusion is coming from - software/digital/intangible goods are just like any other product, with regard to VAT.

Turns out it's being made complicated by HMRC... Anyone would think they enjoy making everyone who collects tax for free on their behalf a crook!

You charge customers everywhere in the EU VAT and pay it to HMRC, the only exception being customers outside the UK who can provide you with a VAT number. For these customers you are free to not charge VAT, as it's assumed they would be reclaiming it in their home country anyway.

The above is true until 2015, when the rules become more relaxed - you will not need a VAT number from customers outside the UK in order to exempt yourself from collecting VAT.

Turns out you need to be part of the MOSS scheme (more here) which was set up to prevent you having to register for VAT in every country you sell your software. Unless you only sell through app stores, and then it's easier because each sale is treated as you selling your software to the store for it to be sold on.

You can reclaim all VAT on your eligible purchases in the UK, just as any other UK VAT registered business would (usual rules apply).

And of course you don't collect VAT from anyone outside the EU, so you can either reduce the price of your software or pocket the additional 20%.

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