Sole trader operating as a public performer and doing technical work in the film industry. Not registered for VAT.
He has, in collaboration with others, created a computer game in his spare time. This computer game is soon to be going on sale. Electronic distribution is to be handled by a business in Germany, who will deal with all the MOSS issues arising. He has an agreement with one of his collaborators to pay for their work out of his receipts from the German company. He has now found that said collaborator is VAT registered. As the payments would appear to be either akin to royalties or payments for services rendered, the collaborator is expected to charge VAT .
The sole trader is not currently registered for VAT, and is not expecting to be required to unless this game proves particularly successful. Voluntarily registering for VAT to reclaim this VAT would harm his existing business. His partner has partly been involved in the game creation process, but no formal partnership has been set up to date for this project.
Would it be possible to set one up now to handle the sale and ongoing marketing of the game, registered for VAT as a separate entity? It is believed the distributors would be agreeable to any such change, so the practical side is covered. If that is not possible, is there any other way around this problem or does he just have to take the VAT hit?
To forestall the obvious comments, he is very aware he should have thought about this sooner. He assures me he will consult in advance if he does something similar in future.
Replies (3)
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When you say a separate entity have you considered setting up a company and transferring the IP and then the company registers for VAT and the public performer sole trade is kept separate?
Also would enable the couple to retain flexibility on profit extraction. Obviously this is not ideal if there are losses, if there is a high possibility then either register the partnership for VAT (does it already exist in any case?). I don't know whether a partner in a VAT registered partnership has to charge VAT on a separate sole trade, perhaps others can comment.
Partnership
I would regard the creation/collaboration as an existing partnership.
Any paperwork now would be merely formalising the ongoing position.
No vat on collaborators share of profits.
If you were not comfortable with that on the more detailed facts, then I would treat each partners share of the IP as the capital introduced in the creation of the partnership.
Again, I don't think that is a VAT transaction.