Reply To: B2B VAT on royalties/commission from an app store app

Forum Categories GENERAL VAT DISCUSSIONS B2B VAT on royalties/commission from an app store app Reply To: B2B VAT on royalties/commission from an app store app

Trevor S

Thanks for the confirmation. The fact that you are only involved with the other company and that they’re UK based does avoid some potential complications!

The VAT treatment of payments by the app store to the other company isn’t relevant in determining the treatment of the payments to you – they are separate transactions under separate agreements. Bear in mind though that it’s the supplier who is responsible for determining VAT liability, not the customer – so even if the app store doesn’t show VAT on documents it issues, the other company might still by liable to declare VAT. But a lot will depend on the contractual arrangements between the app store and the other company – so it’s best not to speculate on that aspect without sight of the documentation.

Back to the payments you receive… Whenever any business receives income, they need to determine whether it is “consideration” (payment) for any supply they’ve made. If it is, the VAT treatment of the payment is based on the nature of the supply – usually subject to VAT unless it’s covered by a specific exemption or zero rating. Even though you’re not raising invoices to the other company for the work you’ve done, I suspect HMRC would deem that the payments you’re receiving from the other company are still consideration for the work done on the app. The amount of income you get may not be fixed (as presumably it depends on the popularity of the app) and you may continue to receive income for some time after you stop working on the app. But (I assume) you wouldn’t have freely given the time to jointly develop it without some entitlement to a share of the income, the other company wouldn’t be paying you had you not been involved in the development, and any future involvement in further development may benefit you if improvements increase sales of the app. Essentially the services provided and income received are sufficiently connected.

HMRC’s guidance in Notice 700 (extract below) anticipates such situations, and deems that VAT would be due on the receipt of each payment:

15.8 Royalties and similar payments
If at the time when you supply services, you cannot work out the royalties that you will subsequently receive, and which are in addition to any amount already payable for the supply – then there will be a further tax point:each time you receive a payment or issue a VAT invoice, whichever happens first.