What is VAT?
Formally known as "Value-Added Tax," VAT is a sales tax charged on goods and services consumed in the European Union (EU) and the United Kingdom (UK).
NOTE: Other countries may also call their sales tax "Value-Added Tax." But for our purposes, we're referring to VAT charged in the EU and UK.
DISCLAIMER: This article is neither financial advice nor tax advice. We recommend that you speak to your tax advisor with any questions or concerns about planning for your taxes.
VAT is an inclusive tax by default. In other words, the prices you charge must be inclusive of VAT. You cannot charge VAT separately from the price you've set for your product.
For example, if you sell a product for $20 and the applicable VAT rate is 20%, then the VAT payable on the sale is $4. And of the $20 sale price, you will get to keep $16 (before accounting for other costs).
VAT may kick in if you're selling ConvertKit Commerce products to, or receive Tip Jar tips from, customers in the EU and UK. Navigating VAT rules can be tricky, and we recommend consulting a tax advisor if you need help understanding your VAT obligations.
But let's cover some VAT basics to get you started:
Are you liable to pay VAT?
You may be liable to pay VAT if you:
Sell to customers in the EU and the UK (even if your business is registered elsewhere), and
Cross certain tax registration thresholds (for example, making a certain amount of sales in a year).
It is your responsibility to determine whether you are liable to pay VAT. While we cannot provide tax advice tailored to your specific business, these resources may be helpful in determining your VAT liability:
You may also wish to consult a tax advisor experienced in VAT-related issues.
What are your obligations if you are liable to pay VAT?
If you are liable to pay VAT (or close to crossing an applicable VAT registration threshold), you'll have to:
1. Register to pay VAT
Approach the relevant tax authority to register your business for VAT. In the UK, for example, you can register for VAT with the HM Revenue & Customs.
It is your responsibility to register for VAT if you are liable to pay it. ConvertKit will not do so on your behalf.
2. Collect VAT on transactions
You'll have to collect VAT on all transactions to which VAT applies (even for transactions that don't involve ConvertKit Commerce products).
We can help calculate the applicable VAT amount when an EU/UK customer buys your ConvertKit Commerce products or tips you using your Tip Jar. To enable this feature, set up your ConvertKit Commerce products for charging VAT.
3. Issue VAT-compliant receipts
The receipts you issue need to comply with VAT record-keeping requirements.
Among other requirements, your receipts must state:
Your business name, registered address, and VAT registration number
The unit price for each product purchased
The applicable VAT rate for each product purchased
The amount payable, excluding VAT
The total amount of VAT charged
Your receipts must also be numbered sequentially.
When you've set up your ConvertKit Commerce products for charging VAT, we'll issue your customers VAT-compliant receipts that state all the required info. 💪
4. File your VAT return
You'll need to periodically file a form known as a "VAT return" with the relevant tax authority to declare the amount of VAT you've charged on transactions. (This is even if you have not made VAT-applicable sales for the relevant period.)
In the UK, for example, you'll generally need to file a VAT return once every three months.
It is your responsibility to file VAT returns for your business. While we will not file VAT returns for you, we provide a VAT report containing the information you'll need to prepare a VAT return in respect of ConvertKit Commerce sales.
5. Pay VAT
Finally, you'll pay the amount of VAT declared in your VAT return. ConvertKit does not pay VAT on your behalf.
Check with the tax authority on your payment options. After that, be sure to pay your VAT bill on time!
If you have other questions on VAT, we suggest contacting the relevant tax authority or speaking with a tax advisor experienced in VAT-related issues.
And if you're ready to set up your ConvertKit Commerce products for charging VAT, this guide walks you through the process 👇