How does VAT impact the level of royalties paid?

My Music Resource is a fledgling company with sales currently below the VAT / GST threshold. As a result, the price of resources sold by My Music Resource currently exclude VAT.

Once turnover approaches the VAT registration threshold, My Music Resource will register for VAT and the price of each resource sold through the website will become VAT inclusive. The percentage of VAT/GST charged will depend on the location of the individual customer purchasing the resource (their VAT jurisdiction). VAT will be charged to the third-party customer through the product price and My Music Resource will remit that VAT to the appropriate Tax Authority.

For example, the sale of a £12 resource to a UK customer is comprised of £10 net and £2 VAT. My Music Resource will pay the £2 VAT to the UK Tax Authorities. For this sale, royalties are calculated off the £10 net. Other countries have different VAT rates and so the VAT amount contained within the £12 selling price will change depending on where sales are being made. Royalties will always be calculated off the net amount after VAT.

It is your responsibility to decide whether you need to register for UK VAT in respect of your royalty income. It is also your responsibility to file your own VAT returns and pay the VAT due to HMRC.

My Music Resource is not a tax adviser and recommends that you consult a tax professional for advice pertaining to your own specific circumstances.

Category: Royalties and Sales Tax