PythonAnywhere is a UK-based company, and the transition period for the UK’s exit from the European Union on will end on 31 December 2020. This will not have any visible effect for people who use our free service. For our paying customers outside the EU, including in the UK, there will also be no changes.
For paying customers inside the EU, the only effect should be that you’ll receive two billing reminders for January, a “pro-forma” one that will come at the usual time, just before your monthly payment is made, and another one later on in the month, which will be the formal “VAT invoice” required by EU tax law.
You will, of course, only be charged once; the second billing reminder will just provide some extra tax information. The remainder of this post is the details of why those two billing reminders will be sent, and we’re posting it here for those who like reading about tax laws…
The following is our understanding of how the changes to VAT rules post-Brexit apply to us specifically. While it is based on our discussions with our own financial advisors, it should under no circumstances be taken as financial advice. We are not tax advisors ourselves, and our understanding may be incorrect, and moreover may not be applicable to any business apart from our own. If you need advice for your own business, you should speak to your own tax advisors.
When any company sells a digital product like ours to consumers in the European Union, it needs to charge VAT at the rate that the consumer’s country determines. For example, if a person in France buys a Hacker account at US$5/month, we need to charge VAT at the French rate (20%), so the total amount that we bill is US$6. Likewise, if someone in Hungary signs up for the same account, we need to charge VAT at 27%, for a total of US$6.35.
(The situation with sales to EU businesses is a little more complicated; we won’t go into the details but essentially it means that we don’t charge VAT on those sales.)
This is the case regardless of where the company in question is based; while the UK was a member of the EU, it applied to us, but it will continue to apply to us next year, in the same way as it already applied to companies in other countries like the United States or Australia.
Now, obviously, having collected this VAT – the extra US$1 for the French customer and the US$1.35 for the Hungarian customer in the examples above – we need to pay that to the appropriate tax authorities.
This can be done in one of two ways; a company can register for VAT in every EU country where they do business, or they can register in just one EU country and do one payment, which that country’s tax authorities will then split up and send on to the appropriate other countries. The latter is obviously a lot easier; it’s called a “Mini-One-Stop-Shop” (MOSS) for some reason that presumably made sense to someone somewhere :-)
In the past, as a UK company, PythonAnywhere was registered with the MOSS system that is run by the UK tax authorities. Every three months we would send them a report saying how much we had sold to consumers in each EU country, and how much VAT we had charged – essentially just a CSV with a country per line. They would check it to make sure that we were charging the right amount of VAT for each country, and then if all was well, we’d transfer them the money we had collected for VAT with an appropriate reference number, and they would then transfer it onwards to the tax authorities in other the other EU countries.
The change that is happening now is that the UK tax authorities can no longer run a MOSS system. MOSS is designed so that the tax authorities in one EU country can collect VAT on behalf of other EU countries; as the UK will no longer be an EU country, naturally this will no longer work.
The solution is pretty simple, though. It has always been possible for companies that are based outside of the EU to sign up for the MOSS system; they just need to apply to the tax authorities of an EU country, and if all goes well they are given an official VAT number to use on invoices and other tax documents. Then they can submit a MOSS return every quarter, just like we used to with the UK tax authorities.
So, early next year, we will submit our application to the tax authorities in Ireland so that we can use their MOSS system. We’ve already confirmed with them that all systems will be go on their side as of January 1st.
Why not do it earlier?¶
The way that the MOSS system is designed means that a company cannot be registered with multiple tax authorities; also, a company that is inside the EU can only register with the MOSS system of their own country’s tax authorities.
This means that while the UK was part of the EU (and during the transition period that covered most of the last year), we could only participate in the UK MOSS system; we cannot register with another country’s system until next year. This means that there will be an unavoidable short period where we are not registered for VAT in the EU. This is fine; a company needs to register for VAT in the EU within one month plus ten days after their first EU sale in a quarter – that is, we need to get it done before 10 February 2021. We expect to get it all sorted much sooner than that.
Why does this mean that we’re sending out two billing reminders?¶
The billing reminders that we send out count as VAT invoices for tax purposes – that is, they say how much we’ve charged you, how much of that is VAT, and – importantly – what our VAT number is. In the past, the VAT number has been our UK one, GB 893 5643 79. That will no longer be a valid EU VAT number as of 1 January 2021.
It takes a certain amount of time for an application to a MOSS system to be processed, as you would expect with any tax process. This means that starting on 1 January, while we will be collecting payments from EU customers, and will be charging VAT where appropriate, we will not have an EU VAT number.
This is all OK tax-wise, so long as
- We register for VAT in an EU country before 10 February.
- We collect VAT at the right rate, and pay it to the appropriate tax authorities at the end of the quarter (that is, in early April).
- We provide our customers with VAT invoices that contain our VAT number as soon as we have one.
One way we could have done that would have been to simply not send billing reminders out to our EU customers until we have a VAT number. However, this would have meant that we’d be collecting money from people without sending them an email about it, which we didn’t want to do.
So, instead, we’ll send out billing reminders at the normal time; these will technically be “pro-forma invoices” – that is, documents to tell you that an invoice will be issued later with the full details. Just like your normal billing reminders, they will say how much your subscription costs, and how much VAT we have had to charge on top of that. However, they won’t include a VAT number and will state explicitly that they are not a VAT invoice.
Sometime shortly afterwards – we hope it won’t be more than a few weeks – we will have our shiny new EU VAT number, so we’ll then send you a second billing reminder, which will include that VAT number and will be a VAT invoice. We won’t charge you again, of course – this will just be to make sure that all of the tax paperwork is done properly.
Then, in early April, we’ll transfer the VAT that we’ve collected to the Irish MOSS system, and all should be well!
Hopefully this is all reasonably clear, but if you have any questions, please do leave us a comment below, or drop us a line at email@example.com.