Like many users on Upwork, I was not surprised to see that the Upwork fee will, from 1st December 2015, be included as part of the service fee. This follows on from changes made on 1st January 2015 to include automatic VAT to digital services. That has now been rolled out to embrace more services and Upwork now comes under that umbrella.
It’s frustrating, but it’s the result of a frustrating new VAT law introduced this year regarding B2C sales. There has been much debate about it and the best we can hope for is that it is reversed at some point as the tax on low income start-up providers of digital services that it actually is. There are numerous petitions and some planned lobbying for the European Parliament to rethink it. To add your voice to the protest and to receive updates on those people actively petitioning MEPs and MPs, EUVatAction is a great website.
What’s The Problem?
The EU is supposed to be about lowering borders to movement of people and closing business barriers that might otherwise exist within the European family. As sole traders / small businesses, we have not been obliged to register for VAT unless we earn over a certain amount. The UK income threshold is generously high, standing at £82,000 for the tax year 2015-16. Other countries have a much lower threshold.
The problem is that new legislation that came in in January 2015 automatically applied VAT to most digital purchases. This includes many micro-sellers, people selling a handful of ebooks every year for a small extra income to make ends meet, were now liable to register for and pay VAT. Many closed their services in protest, but those of us whose livelihood is as a work from home freelancer of digital services, we have had to keep a close eye on whether or not we might be breaking the law. The law passed under the radar in January and to many, it is still not clear what is and is not exempt.
So far this year, it seems that Upwork has been exempt from this. That changes on 1st December when they introduce the VAT on top of their service fees in line with further changes to this VAT law.
Do I Need to Register for VAT to Charge My Upwork Clients?
The brief answer is “no”. Upwork is a provider of digital services and you are its consumer and it is that service on which you are paying EU VAT. Therefore as it stands, you will not have to charge your EU-based Upwork clients.
The longer answer is “it depends on what you are selling”. This is where the system gets a bit more complicated. If you are selling B2B (as the overwhelming majority of contractors on Upwork are) you need to do nothing else. If you are selling B2C, then you should be registering and charging this EU VAT, no matter how little you sell. I produce tailored articles, web pages, FAQs and so on for specific businesses for use by that business and so I am not legally obliged to pay EU VAT. However, as a self-published author through Amazon, any ebooks I sell will be eligible for EU VAT. Thankfully, Amazon handles this.
For more information about what is and is not applicable, please visit this FAQ