Brexit – Changes to our sale policy from the 1st of January, 2021

Update – October 2021

Our products are now distributed via the Freemius platform, which can handle the sale of our products to UK customers who are not registered for VAT. If you are resident in the UK, you can browse our products and purchase them, without having to enter a VAT number.

Brexit – What’s new

After a long period of changes, negotiations and changes, the “infamous” Brexit will reach a major milestone. From the 1st of January 2021, the United Kingdom and connected countries and regions, such as the Isle of Man and Northern Ireland, will no longer be part of the EU. During the transition period, we kept in contact with several authorities, to ensure that we can remain compliant with the regulations that apply to the sale of our product and services to UK residents. Unfortunately, it was only in the last few weeks that we were given some clearer instructions on how we will have to proceed. Due to the new rules, we will have to make some changes to our sale policies. For convenience and brevity, we prepared a summary, which you can find below.

Changes from the 1st of January, 2021

From a customer’s, things will remain mostly the same, with a notable exception. The UK Revenue Office informed us that, since we deal exclusively in services, we will have to account for VAT on all our sales, regardless of the amount. Like it happens with intra-EU sales, we will have to make a distinction between sales to consumers and sales to businesses:

  • Sales made to UK businesses, i.e. customers with a valid UK VAT number won’t have VAT applied to them. The buyer will account for VAT like they did, with the reverse charge mechanism.
  • Sales made to UK consumers, i.e. customers without a valid UK VAT number, will be subject to the applicable VAT, like it happens now. Note: UK businesses who are not registered for VAT will be treated as consumers, in this scenario.

What described above is exactly what happened in the past, for intra-EU sales. An important difference is that, to charge VAT to UK consumers, we will need a UK VAT number. We already applied to get such number from the UK Revenue Office, but we haven’t received one yet.

How the changes might affect our customers

Unfortunately, without the UK VAT number, we can’t charge VAT to UK consumers. Still, the UK Revenue would ask us to pay them the applicable VAT, which we can’t collect. They suggested us to just increase prices, to “cover” for the VAT, but that is not feasible, as it could affect all other clients as well.

Due to this “wrinkle”, we had to take a difficult decision. Starting from the 1st of January 2021, we will no longer be able to sell our products to UK consumers. If you try to place an order with a UK billing address, you will be required to enter a valid VAT number to complete the purchase.

This restriction will be in place until we will receive the necessary documentation from the UK Revenue Office, which will allow us to resume charging VAT to UK consumers. As of today, we don’t know how long that is going to take. The officer informed us that this registration process can take several weeks, and there isn’t much we can do to speed up the process.

Update – May 2021

Due to the additional administrative work required to have a UK VAT number and file the necessary returns, we opted not to register for VAT in the UK. Instead, we will move our products to an external platform, which will handle the VAT aspects on our behalf. We are aiming to have the migration completed by Q2 2021. After that, UK customers who are not registered for VAT will be able to buy our products.

 

We are aware that this is an unpleasant change, unfortunately we couldn’t find another viable alternative. The whole Brexit process has been chaotic and poorly managed for everyone involved. We will do our best to resume normal operations as soon as we can. In the meantime, if you have any question, please feel free to contact us. We will be happy to answer your queries.

 

The Aelia Team

6 replies
  1. David says:

    Hi Diego,

    > “From the 1st of January 2021, the United Kingdom and connected countries, such as the Isle of Man and Northern Ireland”

    The United Kingdom is, to give it its full title, the United Kingdom of Great Britain and Northern Ireland. i.e. Northern Ireland is not a connected country like the Isle of Man is; it is part of it (like e.g. Wales is).

    Reply
    • diego says:

      Hi David,
      You’re right. After 20 straight hours of work, I didn’t pay too much attention to that aspect. 😅 I’m going to correct the description, thanks for pointing that out.

      Reply
  2. David says:

    By the way…. I also spoke to HMRC on precisely the same subject as you did, and got no further (though in my case we already have a UK VAT number so don’t have that issue or the consequences of it). The person I was speaking to suggested I should raise the issue with some other team within HMRC. I told him that he could do that if he liked, but that if HMRC didn’t provide a workable way for foreign businesses to charge taxes to customers then this was not something I personally had time to chase up, and that many foreign businesses would be likely simply to conclude that they would ignore HMRC and wait to see what the consequences, if any, were (the “if any” especially applies to businesses with zero UK footprint outside of selling digital goods to UK consumers), and that I had enough of my own work to attend to without navigating HMRC’s internals in order to alert one part of it to a problem which another part was already (through our conversation) aware of.

    Reply
    • diego says:

      I had a fairly long, “back and forth” conversation with the HMRC myself, and it was like an infinite loop. With this Brexit, they introduced rules that are analogous to the ones that were added by the VAT MOSS regulations. Back in 2017, thousands of UK merchants pressured the EU council to change the system and introduce a minimum threshold. The rationale was that it would have been too expensive, for small businesses, to comply with the regulations. Now that the VAT MOSS has a threshold, here comes the UK. One of the main players, who so vehemently insisted to change the unreasonable “zero threshold” rule, decided apply the exact same rule to EU merchants and is now expecting full compliance right from the start.

      If that weren’t ironic enough, I have to add that they managed to do an even worse job, by not providing clear instructions, tools, nor any useful guidance. Their own API service is still in Beta, and they are quite candid in admitting that breaking changes, or issues, could be around the corner.

      The “cherry on the top” is the contradiction in some of the rules. It was the beginning of December 2020, when they came up with the fact that EU businesses will need a VAT number before the 1st of January 2021. However, to get one, a merchant had to send a form by post and wait around 40 working days to get an answer. In other words, one had to be compliant with their rules within 3 calendar weeks, but it would take them 8 weeks to process an application. This kind of management could put a website The Onion out of business. 😄

      Reply
  3. Tom says:

    Any update on this? I want to buy your product but my UK business isn’t registered as I’m below the VAT turnover threshold.

    Reply
    • diego says:

      Hi Tom,
      We’re currently working to move all our products to an external service, which will handle sales and taxes on our behalf. That will also allow customers from the UK, who don’t have a VAT number, to place an order. The migration is not trivial, and it will still take a while. In the meantime, a few of our customers adopted a workaround like asking a VAT-registered business (e.g. a consultant) to purchase the products on their behalf, and then resell, or transfer the licence to them. This will cover them for a year, then they will be able to get their licence directly from us, when the new sale system will be operations.
      We’re aware that this is a bit clunky, as a solution. Unfortunately, we can’t offer any immediate alternative right now. Brexit caused quite a bit of chaos, we’re sorry for any inconvenience caused.

      Reply

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