Google and the VAT Ticking Time Bomb
The VAT Ticking Time Bomb that could cost UK Small Business Billions of Pounds
As most people in the UK aware the services they pay Google for are provided via Google Ireland and due to VAT laws Google do not charge VAT to UK businesses as it comes under the VAT reverse charge mechanism which moves the responsibility for the reporting VAT transactions from the seller to the buyer of goods or services.
Now this is fine for VAT registered UK businesses as you just account for it on your VAT return and your EC Sales list.
The problem is, what happens if you are not a VAT registered business?
Google still treat you the same way as a VAT registered business and pass on the VAT responsibility to you, but as you can’t report the VAT you also can’t account for it and can’t reclaim it.
What this effectively means is the VAT due has never been accounted for.
You may hear people say, it’s not your problem it is Google’s responsibility to collect the VAT when HMRC finally cotton on to this ticking time bomb
You have 2 big problems though
- The reverse charge mechanism moves the responsibility for the reporting of VAT from the seller to the buyer.
- When using the Google service, you agreed to their terms of service which say “Charges are exclusive of taxes. Customer will pay (i) all taxes and other government charges and (ii) reasonable expenses together with legal and other professional fees Google incurs in collecting late payments that are not disputed in good faith.”
What this effectively means is the service has been provided exclusive of VAT but it is your responsibility to ensure the VAT is paid and if HMRC claim against Google, you have agreed to pay this back to Google plus any fines or legal fees imposed upon Google.
If you have been using a Google service for the past 20 years, are not VAT registered, have not been accounting for the VAT this VAT ticking time bomb could go off at any time and cost you thousands of pounds.
Sleep well 🙁