EU-based patrons and VAT

[Jack]

Hello All,

I’d like to share a relatively new change in the behaviour of my EU-based patrons:

Now that many of them are settled and very familiar with the Patreon platform, they’re getting in touch with me to say that it really niggles them that they have to pay 20% VAT on their pledges.

I totally agree with them.

They understand that there needs to be a paywall for the extra content I provide, so they’ve been asking if they can reduce their pledges to my minimum $3 Tier, then pay the difference by card or directly into my bank account by Standing Order.

So that my patrons remain happy, I’ve agreed to help them with this work around. It works well for me too because it means I receive more money — lower fees and no currency conversion.

ASIDE: I’ve read your 2020 roadmap for currencies — an excellent step forward.

Once my patrons lower their Tier, I send them to the Become a Supporter page on my website where they can top up their pledge using the new Recurring Payments feature from Wordpress…

…or, as I mentioned further up, I give them my bank details.

It’s not ideal — and a little bit clunky — but I wish they felt they could simply pledge through Patreon and leave it at that.

I bet Patreon wish that too! And this VAT issue can’t be good for the growth and perception of the platform?

So, I’m wondering if there’s anything in the pipeline that will enable you to remove the need to charge patrons 20% VAT on their pledges?

The topic’s become so prevalent for me, that I’ve actually added this VAT workaround as a ‘tip’ to the longstanding ‘quick note on dollars and VAT’ section on my overview page:

Never good, in my opinion, to have to highlight a potential problem from the outset.

I’ll look forward to hearing your thoughts.

— Jack

[rbcdart]

I have a couple concerns with your solution. The main one, is this an illegal way to dodge taxes? The other is that it seems like Vat could just be rolled into the level automatically so patrons pay as advertised. I believe Patreon did this earlier in a similar situation. I understand 20% is huge, may be worth establishing EU tiers so that patrons do not have to play games. They would be choosing the EU tier voluntarily, which in a patron situation is entirely likely. A simple explanation would explain why the EU tier is higher and might actually help lead to political action.

[Jack]

Hello Richard,

Thank you for your reply.

They’re not illegally dodging taxes at all! They’re simply reducing their pledge via Patreon because they don’t like how much it costs, then using a cheaper (legal) option to do the same thing via a mechanism in their native currency (and paying with their hard-earned taxed income).

Remember, these are longstanding patrons who have now had a bit of time to digest the landscape, then get in touch to let me know how they feel about the VAT element. They can’t understand why they have to pay it when — as a self-employed artist — I am not registered for VAT.

Of course, there is a reasonable explanation for that on the Patreon website, which I link to from my Overview/About page, but still, it’s a big sting.

Hopefully, I’ve always been very clear about the EU VAT element from the outset. Have a look at my page and see what you think:

Jack Lowe is creating The Lifeboat Station Project | Patreon

Best wishes,

Jack

[rbcdart]

You have a wonderful page and project. Thanks for clarifying the Vat situation. I think you have covered all the bases nicely.

[Jack]

Thank you very much, Richard.

[Maarika]

Thanks for raising this issue. I’m also a EU creator and by the laws in my country, my business is not required to collect VAT, so it’s disappointing that EU patrons still have to pay VAT when they pledge to me.

I’ve also hesitated pledging to other creators because of VAT. A potential solution to this would maybe have creators pay the VAT instead - or at least offer that as an option for those who want to do so. Personally I’d rather pay the VAT myself (although like I said, I’m not legally required to collect VAT in the first place) than have my patrons pay more on top of their pledges.

Another improvement that could possibly reduce some friction at checkout: display the tier prices inclusive of VAT to EU patrons on the home page. Feels crappy to go through half of the transaction process and then find extra fees stacked on top of your total sum.

[Jack]

Hi Maarika,

Thank you for your reply and input.

The VAT is such a stinger whichever way you look at it, isn’t it? I just don’t see why HMRC are insisting on it and, as I think Patreon themselves have mentioned in the past, it’s frustrating as it stifles the growth of creators’ income rather than allowing it to flourish.

The irony is that it also stifles Patreon’s revenue.

Your suggestion to reduce friction at checkout is exactly what I’ve done since the day I launched my Patreon page in November 2017 and it certainly disarms any potential friction/disappointment.

Of course, there are still the occasional people who don’t read everything and are still surprised (!) but at least the facts are laid out.

As I mentioned to @rbcdart above, take a look at my Patreon page to see what you think — check out the Tier titles, the line at the bottom of every Tier and the note about Dollars and VAT on my overview page (also screen-grabbed in my original post opening the topic above):

Jack Lowe is creating The Lifeboat Station Project | Patreon

Best wishes,

— Jack

[evan_der_millner]

As my business is based in the UK, and I am not registered for VAT, surely itv s illegal for me, via Patreon, to charge my patrons VAT?
You must not charge VAT if your business is not registered for VAT. However, VAT registered businesses must charge VAT on their taxable supplies of goods and services and can reclaim the VAT they have paid that relates to the supplies on which they have charged VAT.

A penalty is payable by anyone who issues an invoice showing VAT when they are not registered for VAT: paragraph 2, Schedule 41, Finance Act 2008. The penalty can be up to 100% of the VAT shown on the invoice. There is a minimum penalty of 10% of the VAT even if there is an unprompted disclosure to HMRC of a careless mistake, as distinct from deliberate and concealed conduct

[Jack]

Hello Evan,

Fear not. This is a bit of a different situation as outlined here by Patreon.

Quoting from the page:

Starting in 2015, the European Union changed regulations for how VAT is calculated on sales of digital services. It is now determined by the location of the consumer, not the location of the business. This also applies to independent content creators like the ones on Patreon.

Instead of putting the burden on Patreon creators to collect and calculate VAT chargeable to EU-based patrons, Patreon will handle it. We will automatically present and collect VAT at the applicable rate from EU-based patrons, and we will also take care of the filing and remittance of VAT payments made by patrons for digital services provided by our creators through Patreon. Creators, whenever you see your patrons’ payments, account balances, etc. on Patreon, VAT chargeable to patrons for digital services has already been deducted.

For creators based in the EU, you will not need to remit VAT charged to Patrons for digital services on your Patreon page because we are handling that for you. If your rewards include physical goods or other things besides digital services we recommend you consult with a local tax advisor or local tax authority for information on the VAT due for those goods. We also recommend that you consult with a tax advisor or local tax authority to confirm that by using the Patreon platform you will not be required to register for and collect VAT.

I hope this helps,

— Jack

[aesirsports]

By pledging, patrons don’t get into a contract with you, but with Patreon. And Patreon hast to pay VAT.
Patreon is essentially just paying you for aquiring a patron.

But I totally agree that it’s a big downer for patrons to find out they have to pay more than is advertised in tiers. The VAT should already be included in the pledge not added on top of it.

[mindy]

Hey @Jack, thank you for reaching out and sharing your thoughts around this, plus those of your patrons. I’m British myself so I understand the complexities around VAT, and I personally love your lifeboat project.

I checked in with our team around this, thanks for being patient while I gathered all the appropriate info. We understand that VAT is both tricky and an area in which Patreon can (and plans to) improve.

Currently our logic is such that any tier offered through Patreon would qualify as an “electronically supplied service” (which encompasses digitised goods delivered online) and thus subject to standard rate VAT across the EU.

Until we have built out optional charges (vs compulsory charges) logic, our hands are tied. All Patrons within the EU will be charged VAT on any payment made. Relevantly (and as context for our current position), VAT should/would apply on the value of the digital goods, which includes videos, downloads, and pictures, being transferred in a transaction.

That said, we are sorry for our current inflexibility, and are actively iterating on our tax logic. We appreciate your patience, and will let you know of any upcoming improvements as we make them.

[Jack]

Thanks for letting me/us know, @mindy, and thank you for your kind words about my project.

On the VAT front, I thought as much but it’s good to hear you’re thinking about it — just thought it would be valuable to know this bit of feedback.

Best wishes and thanks again,

Jack

[Stan_Saluda]

Jack, the thing about the EU VAT is connected with the fact that the EU wants to curb tax avoidance, i.e. when a company officially operates in a tax haven, e.g Malta or Cyprus but distributes their goods/services around EU and not pay taxes in the countries they really operate in. It was a common practice to set up a company in a country X where you pay less tax because when you’re an online company you can be based wherever but in reality you sell some e-services solely in let’s say Germany.

So what they want you to do is to pay appropriate tax based on the country of residence of your customers. The EU introduced something called VAT MOSS so that you don’t have to register in each and every EU country and pay taxes there but do it in one place. Still you’re responsible for establishing where your customers are based in, which is a hassle, and know how much VAT each country charges. The fact that by using Patreon as a middleman we, creators, don’t need to deal with that and it’s all handled by Patreon is actually a godsend for me. It’d be a nightmare for me if I had to do it on my own and keep track of all of that myself.

Personally, I’d prefer to get less money so that my EU-based Patrons don’t have to pay more because it looks dishonest when I say “pledge $5 to get X” but it turns out they need to pledge $6.

BTW, the fact that you’re not a VAT payer in the UK doesn’t necessarily mean you don’t have to pay this EU tax as you supply services outside the UK. Read this official article or that less official guide. Actually, I think that you might need to pay that EU VAT on your own when you use your workaround but you’d need to check with a professional tax accountant (and see whether what you give people for their support falls under “supply of digital services to consumers”)

[Michael_Loucks]

@Stan_Saluda

Personally, I’d prefer to get less money so that my EU-based Patrons don’t have to pay more because it looks dishonest when I say “pledge $5 to get X” but it turns out they need to pledge $6.

Just a note, for US folks, this is how most taxes on goods work (there are also excise or other taxes which might be built into the price). The price on the shelf or the item does not include ‘sales’ tax. And that’s true from everything from a loaf of bread to a car.The one notable exception is for gasoline, where the advertised price includes all taxes (excise and sales).

One thing I loved about living in Sweden - the price on the shelf was the price. Back here in Chicagoland, I can’t know the final price without knowing which county or city I happen to be in…

[bjorn]

@mindy Having the option to avoid the EU VAT on optional charges would be amazing!

In the short term, I think the VAT could be based on the chosen tier rather than the pledged amount. That way, people can pledge any amount and only pay taxes based on the value of the “service level” they’re paying for.

On itch.io I have the same problem, where I provide my product for free, but if people voluntarily decide to pay for it, they get charged EU VAT on their payment. It means they’re better off paying the minimum amount on itch.io to get the product in their library and donating the rest through other means, but few will do this because it’s clumsy.

On Patreon, most of my tiers are symbolic, representing only donations with no services or products attached. It is one reason I’m recommending my patrons to pledge through GitHub Sponsors instead, which does not charge EU VAT at all. Of course, this is a little complicated because I have to tell EU patrons to not pledge to any tiers with actual services via GitHub Sponsors.

OpenCollective determines whether to charge VAT based on the type of tier (though the docs are unclear to me on whether VAT will be charged for all tiers if any tier requires VAT, or only on the actual VAT-applicable tier). In any case, it would be great to have such a feature on Patreon.

[artbyemilyhare]

Hmm I have been wondering about this lately too. I don’t charge VAT via my website for anything I sell there (be it a digital download or print or original art) because I am self employed and don’t make enough to be VAT registered. So for me, I find it frustrating that my patrons are being forced to pay VAT. My commission tiers make it quite a bit more expensive. A recent patron joined my $65 tier (which they pay for 3 months till they get an original painting) and they actually paid $77 per month!! She thankfully didn’t mind but it does make me wonder how many people join and decide not to at check out.

I see that in the USA it’s expected there to be some add ons at the end, but for me this seems so dishonest and has made me look around for other ways to provide a subscription service via my own website so I can be in control of things like VAT.

[Dries007]

Another point in this whole discussion is that Patreon is handeling displaying the VAT wrong. Patreon is advertizing the tier price without VAT (and in dollars).
At least in Belgium you are legally required to show prices (including all taxes) on all your adverts, listings and pages.
Ofcourse many international websites don’t, but then they also don’t include VAT, so the consumer still pays as advertised. This is what bothers me the most about this whole thing.

[mindy]

Thanks for sharing your experiences around this @artbyemilyhare and @Dries007 (welcome to the forum btw ). Please know we’re aware of this issue and we’re going to fix it.

This is something we are actively working on improving and will continue to iterate and improve this as we invest in our international expansion. Your feedback is vital in helping us ensure we provide an amazing experience for creators and patrons, where ever you are in the world.

[Kara_Leigh_Ford]

Hey guys,
Anyone else from the UK here?
I wanted to ask how you manage the issue of VAT being added to your Tier pledges? I had a few Patrons question the fact that they were charged £10.30/$13.50 (which is my Tier pledge PLUS 20% VAT we are charged here in the UK) instead of the £8.40/$11 advertised on the Tier Level.

So, I added some copy to the Tier explaining this but now I worry that this is confusing for folks whom VAT is not relevant too. It also makes my Tier info really long which I feel is a barrier.

Would love your thoughts.
Kara

[Jack]

Hello Kara,

Yes, indeed. This is quite well documented on here, not least in this thread, so have a good root around and you’ll find some tips.

My top tip on how to handle it (as described in this thread) is to take a look at my Patreon page — examine every detail on the overview page and the tiers.

I’ve laid it out in a way that means that EU-based patrons pledging on my page will almost certainly be prepared for the VAT element. As a result, it’s rare for me to receive any comments/complaints about it.

— Jack