Should I pay a company who failed to collect VAT from me over 6 months ago?

Question

Nearly 7 months ago I purchased some software for $12.99 from an company in the USA. I didn't check at the time whether that price included VAT as in the EU:

You have to be clearly informed about the total price of the goods or services including all taxes and additional charges. Source

So I'm not used to it not being included. I was therefore surprised to get this email from the firm demanding I pay VAT on the purchase because they didn't collect it at the time.

Is this email a legitimate demand - and if so do I need to pay the firm directly or should I pay HMRC (the UK's inland revenue) instead?

Answer 1

It looks like businesses selling services (like software downloads) from outside the EU to the UK have to register for VAT if the amount of such sales goes over the UK VAT registration threshold:

[If] the value of the taxable supplies you make is over a specified threshold [then] you must register for VAT

So it seems plausible that this business does have some requirement to charge VAT on its sales, but clearly it should have done so at the time of sale, not months later.

As you say, UK and EU law require that prices are displayed including relevant taxes. Since this business is in the US, they might be able to claim that those rules don't apply to them. But I'm not aware of even US businesses being able to claim sales tax from a US customer months after originally making a sale, and it goes against all reasonable principles of law if they would be able to do it.

So the business should really just accept that they screwed up and they'll now have to take the hit and pay the tax themselves. They can work as if the pre-tax price was $12.99/1.2 = $10.825, leaving $2.165 they need to hand over to HMRC. I don't think there's any legal way they can demand money from you now, and certainly for such a low sum of money there's no practical way they could.

I can't find anything definitive one way or the other, but I suppose it's possible that HMRC would consider you the importer under these circumstances and so liable for the VAT yourself. But I don't know of any practial way to actually report this to HMRC or pay them the money, and again given the amount there's no realistic chance they'd want to chase you for it.

In your shoes I would either ignore the email, or write back and politely tell them that they should have advertised the cost at the time and you're not willing to pay extra now. And you might want to keep an eye on the card you used to pay them to make sure they don't try to just charge it anyway.

EDIT: as pointed out in a comment, the company behind this (or at least one with a very similar problem and wording in their emails!) did end up acknowledging that they can't actually do this and that they'll need to pay the tax out of the money they already collected, as I described above. It seems they didn't contact the people they originally emailed to let them know this, though. There's some more discussion here.

Answer 2

Note: I am not a lawyer. This is my personal opinion and interpretation.

First, your source is European Law, which obviously doesn't apply outside of the EU. The EU cannot make laws that bind entities in other countries; so you cannot claim that the VAT was needed to be mentioned.

Second, if you owe something, you owe it; it doesn't matter if it was forgotten to be mentioned. At best, you can say that under those circumstances you don't want the software anymore, and i would assume you can send it back and get your money back (minus a fee for having it used for a while...) - this gets quite difficult to calculate clearly, so it's probably not a good avenue to follow for you.

As the company has to send the VAT to your country (they will not be allowed to keep a dime of it, and have to bear the complete cost for the handling), it is a debt you have to your government; they are just the entity responsible for collecting it.

Still, if you just ignore them, they will probably suck it up, and your government will also not do a thing to you. If they only have your email address, they have no way of knowing if you even still have/use this address; for all they know, it could be you never got it.

They also cannot simply charge your card, as they probably don't have the card data any more (they are not supposed to keep it after the transaction is complete, and they thought it was complete at the time).

All in all, you should be safe to ignore it. It's between you and your god/consciousness, if you feel obliged to pay it, as technically you owe it.