App sales revenue split and UK VAT reporting

[Adam Ellingford]

Hi

I haven't had to look too closely at Apple's revenue split before
because I've only worked on free apps. However, I'm now starting a
project for a client that will feature in app purchases. Their market
is relatively small and the potential return is a key part of their
business plan. I was asked today if their cut would be after tax as
well as Apple's 30%. Looking online and at the contract, it would
appear so.

Please can someone offer first hand experience of this with an
example? I think it looks like this:

Sale price: £1.19
VAT: £0.20

Nett price: £0.99
30% apple:£0.30
70% dev: £0.69

The developer takes home just £0.58 from a £1.19 sale price. Is that
right?

I'm also really keen to hear from anyone who is VAT registered and how
they have reported their sales to HMRC. I've found a few discussions
around this subject and the consensus appears to be that:

"...software is considered an "electronically-supplied service", and
it is being supplied to another EU VAT-registered business for
business purposes, the place of supply rules indicate that this supply
is *outside the scope* of UK VAT. [2] Therefore, I issue a non-VAT
invoice for the payments from Apple to me" [1]

Is this right? Would I issue Apple with an invoice that does not
mention VAT?

Thanks in advance for your insights :)
Cheers
//A

[1] http://forums.macrumors.com/showthread.php?t=682816&highlight=vat

[Adam Ellingford]

Ahem, I said: "The developer takes home just £0.58 from a £1.19 sale
price. Is that
right?"

Of course not, I meant £0.69. Busy head today...

Cheers
//A

[Adrian Driscoll]

For UK sales it is 0.72

a

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[Nick Kuh]

Hi Adam

I believe that you can assume that the transaction with Apple is exempt from VAT following some discussions with my accountant and other online threads. Might be wrong. Hope not...

My understanding is that of your £1.19 sale price Apple gives you 70% of that gross figure - so £0.83 per sale - so you/your accountant need to figure out whether that £0.83 should be exclusive of VAT or not - in my opinion it's free of the VAT(!)

Nick

[Nick Kuh]

It's never an exact science though due to currency fluctuations. Unless you're only selling to the UK market of course.

[Adam Ellingford]

On Mar 24, 10:23 am, Adrian Driscoll <adr...@aimermedia.com> wrote:
> For UK sales it is 0.72

Thats what it says in the contract but its based on 15% VAT. Actually,
that makes me think, iTunes sales are by Apple in Luxembourg aren't
they? Is 15% the appropriate rate for sales there rather than 20% UK
VAT? Or have they kept the rate at 15% and swallowed the difference as
UK VAT rose to 17.5 and then 20%?

Cheers
//A

[Adrian Driscoll]

I was writing a note so say that you'd go mad if you tried to work it out and this confirms it - that amount was on a sale made yesterday. Best to be vague for estimating it - Tier Retail Price less Apple 30% and Apple's local sales tax calculation - I use a rough 38% if the UK is a big part of the market. My spreadsheet experiment is indicating not 20% so Adam may be right which makes doing a rough estimate and then dealing in the actual cash you get easier (esp with the payment being on a spot rate different to the daily reporting ones).

We don't account for VAT for reasons this list has discussed several times and our publishing partners have concluded the same from their end.

A

[Anne Caborn]

You may have seen this one on VAT but it's very good

http://www.flexicoder.com/blog/index.php/2010/06/payments-from-apple-company-vat-return/

If the feeling is that HMRC is applying VAT wrongly it may be worth approaching a VAT expert who will actually look at this from a point of law perspective.

Also, for those of you who are VAT registered I hope you have explored the Flat Rate Scheme.

Anne

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[Adam Ellingford]

Hi Nick

Interesting, that seems to run contrary to what I've read in forums
and in the app sales contract [1].

Are you seeing your own sales reported in that fashion? I'd love to
see a real world example. The app contract has a table showing the
revenue split per country (I've discovered since sending my first
email) and for the UK, a 59p sale results in 36p for the developer - a
61% split. At 1.19, its 72p as Adrian pointed out.

Cheers
//A

[1] For sales of Licensed Applications to end-users located in those
countries listed in Exhibit B, Section 1 of this Schedule 2, Apple
shall be entitled to a commission equal to thirty percent (30%) of all
prices payable by each end-user. For purposes of determining the
commissions to which Apple is entitled under this Section 3.4(a), the
prices payable by end-users shall be net of any and all taxes
collected, as provided in Section 3.2 of this Schedule 2.

[Adam Martin]

If VAT is part of this, wouldn't Apple be legally required to provide
a full VAT report to each developer (on request, if nothing else)?

[Adam Ellingford]

Hi Adrian

Ah, I'd forgotten to search first (apologies). There is a good post on
here which is basically the same as the link that Anne posted. I think
its quite a clear example of how to treat this situation. Apple
effectively insulates the developer from tax at point of sale. The
developer need only concern him or herself with the supply to Apple -
as one VAT registered business to another within the EU. Makes sense.
15% is indeed the VAT rate in Luxembourg.

Returning to my original concern, it looks like a developer really
will only receive 60% of a sale made in the UK / EU. I just have to
hope that doesn't make the project unworkable for my client.

Cheers
//A

[Emily Toop]

Anyone interested in in-app advertising might be interested in this event coming up: 

Adfonic Breakfast Workshop

http://blog.adfonic.com/?p=473