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Software Sales Tax in the United Kingdom 🇬🇧

How do I solve my tax liability?
Agony Rating
Sales Tax Rate
Taxable Goods
Highest Penalty

How likely am I to get caught for owing sales tax in United Kingdom?

Almost certainly, especially if you sell to customers in the UK but your business is based elsewhere.

What is the sales tax threshold in United Kingdom?

Based in the UK: £85,000 Based outside of the UK: £0, you’re liable for tax from your first sale.

Is SaaS taxable in United Kingdom?

Yes. You owe tax for the sale of cloud software subscriptions to customers in United Kingdom.

Are software downloads taxable in United Kingdom?

Yes. You owe tax for the sale of software downloads to customers in United Kingdom.

Are eBooks taxable in United Kingdom?

No. You don't owe tax for the sale of eBooks to customers in United Kingdom.

Are digital downloads taxable in United Kingdom?

Yes. You owe tax for the sale of digital downloads to customers in United Kingdom.

Registering for VAT in the United Kingdom

😐🌶️ It's not that complicated

Businesses based in the UK must register for sales tax when sales exceed £85,000. For businesses selling into the UK, there isn't a threshold so software sales are taxable from the very first sale.

The process is fairly simple but it can take up to 4-6 weeks before the process is complete and you receive your VAT number. This means it’s best to plan ahead and submit your registration before you actually need to as you can’t charge VAT on your invoices until you get your VAT number.

Filing & Remittance of VAT in the United Kingdom

😐🌶️ It's not that complicated

Filing and remittance for businesses based in the UK is integrated into a majority of accounting and bookkeeping software, following the UK government initiative in Making Tax Digital. Remittance is usually payment by direct debit from your bank account. 

For those based in the UK, who currently pay through VAT MOSS – this process might change slightly from January 2021 because of Brexit.

Penalties for VAT non-compliance in the United Kingdom

😩🌶️🌶️🌶️ It's crippling to the business / person

The penalties for non-compliance in the UK can be crippling to businesses. Even seemingly inconsequential errors like late payment or miscalculations can result in a surcharge of between 0-15% of the VAT liability and additional penalties that range from 30-100% of the amount owed. 

Directors of businesses selling in the UK are ultimately liable for any issues in VAT payments. If a business is found to have evaded tax liabilities, penalties increase to criminal charges, including a prison sentence of up to 7 years and an unlimited fine.

Had enough yet? There's more…

How to become sales tax compliant globally 🗺

Three Routes to Compliance for SaaS Executives

SaaS executives have a choice of three routes to global tax compliance. Get the guide to walk through the options for your team.

Download the guide »

Don't Worry, Ask Hugo

As CFO of Paddle, Hugo's finance team manages global tax compliance for $100M's of ARR from over 2,000 software businesses. Ask your questions in our live webinar.

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How can Paddle help?

Paddle can take all your responsibility & liability for sales tax off-your hands. Our global entities, finance team, and $160k+ year spend on agents, tooling, and accountants is ready for you.

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