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Handling Brexit Impacts 

Overview 

With Brexit, Chargebee is ready to accomodate your changes in tax configuration with respect to the new VAT obligations. Note that these changes are not automatically enabled for your Chargebee site. You have to update them manually based on your business requirements and adhere to the deadline specified in order to avoid incorrect taxation that could lead to fines and interests.

This document captures a gist of Brexit, and all the essential settings that you need to update in Chargebee to stay compliant with the new set of obligations starting January 1st, 2021.

The necessary changes related to Brexit are available for you to update in your Chargebee site as applicable. They require your action to take effect, and will not be automatically updated on your behalf.

What is Brexit? 

Brexit  is the withdrawal of the United Kingdom (UK) from the European Union (EU) and the European Atomic Energy Community (EAEC or Euratom) on 31 January 2020. It continues to participate in the European Union Customs Union and European Single Market during a transition period that will end on 31 December 2020.

While using Chargebee for your recurring billing automation, being Brexit ready is crucial because it impacts tax computation of your invoices.

How does it impact your business? 

When you have configured taxes in your Chargebee site using the Manual mode or via Third-party integration, Brexit has possible impacts on your business in the following cases:

  • If your business(organization address) is based in the UK.
  • If your business(organization address) is based in the EU or elsewhere in the world, and you are selling products and services into the UK.

The following table explains the various impacts and their respective behaviour before and after Brexit:

Impact Area

Before Brexit

After Brexit

Tax Region

UK exists within EU region for which EU VAT is configured in Chargebee.

UK needs to be a separate region going forward, and therefore UK VAT needs to be configured seperately. Value Added Tax: Mini One Stop Shop (VAT MOSS) is not applicable for the UK region.

Tax rate for UK

20%

20%

The tax rate for UK needs to be updated manually in your Chargebee site if there's any change in the tax rate.

Location Validation for digital goods

When enabled, Chargebee collects certain address/location information as evidence of the customers' location.

When enabled, Chargebee collects certain address/location information as evidence of the customers' location.

VAT Number Validation

When enabled, VAT validation is performed by VAT Information Exchange System (VIES).

Not applicable until the UK tax authorities (HMRC) provide a new service for validating the UK VAT numbers.

VIES Consultation number

When enabled, consultation number is generated and provided by VIES on successful validation.

Not applicable for UK as VIES will not be used any more for VAT validation.

What needs to be done in Chargebee? 

You need to make certain changes to the tax configuration in your Chargebee site, depending on how Brexit impacts your business and based on factors such as:

  • Your organization address.
  • If you are selling within/into UK, EU, and outside EU.
  • Whether you are selling digitial goods or non-digital goods.
  • If you are selling to individuals(B2C) or to businesses(B2B).

We strongly recommend that you try these settings or configurations in your Test Site first, and then move them to your Live Site. By generating some sample invoices in your Test Site, you can see the new VAT application and avoid any discrepencies. You can then make the same set of configurations in your LIVE Site on 1st January, 2021.

If you are not making necessary changes for Brexit in Chargebee, your invoices will continue to carry outdated, error-prone taxes that will not comply with the Brexit laws. You could end up charging your customers wrongly, paying fines for not following the taxation rules, all of which could have a bad impact on your business.

If you're selling digital products 

Note

If you're selling digital products into the UK, following steps is a quick overview of what you need to do in Chargebee:

  1. Purge your current settings for UK from the Brexit banner on Configure Tax page.
  2. Configure tax for UK region seperately, and verify VAT settings based on the new UK tax laws.
  3. Update VAT MOSS under EU Region (if required).

To make necessary updates for Brexit in your Chargebee site, follow these steps:

  1. Click Settings > Configure Chargebee > Taxes.

  2. In the Configure Tax page, click Get Started from the Get your business ready for Brexit banner.

  3. If you have confirgured tax for the EU region for digital products, a warning modal is displayed. Click Yes, Continue. The previously configured tax details such as tax labels, tax registration number, tax rates, and so on for the UK is removed.

If you are an organization selling digital products into the UK, you have to configure tax details for UK seperately. To configure taxes for the UK region in your Chargebee site, follow these steps:

  1. Click Settings > Configure Chargebee > Taxes.

  2. In the Configure Tax page, click +Add Region and select United Kingdom from the drop-down.

  3. Under What type of product do you sell, click I sell digital products.

  4. In the Tax details modal, enter the following information:

    • Select the Tax label.
    • Enter your Tax registration number for UK.
    • Enter the Tax name.
    • Verify the Tax rate, and click Save.

  5. In the UK tax region page, verify the following settings in context of the new UK tax laws:

    • Price type: Select the appropriate price type for your checkout prices in the UK region.
    • Validation Options:
      • You can enable location validation as required. Chargebee collects certain address or location information as evidence of the customers' location.
      • VAT validation will be shown in a disabled state until the UK tax service becomes available. Until the UK tax service is available, make sure that you handle the VAT verification responsibility by yourself. You can disable the VAT field in your Checkout, if you don't want to use reverse charge and always apply VAT(not recommended).
    • Collect Tax Registration Number: Enable this option if you expect your customers to enter their VAT Number while subscribing to your products.
    • Use local currency to display VAT in invoices: When this option is enabled, the amount of VAT payable gets displayed in the invoice currency as well as the local currency of the place of taxation. You can also choose to display the total amount excluding VAT and the total invoice amount in the respective local currency. The exchange rate applied for this purpose is as per the rates listed in the European Central Bank(ECB) website.
    • VAT Exemption Note for Exports: This option is available when your organization address is based in the UK. If you export goods or services to other countries from UK as part of your business, enabling this option adds a note in the respective invoices that refers to the VAT exemption for export transactions. You can edit the note to add or edit the text.

If you are an organization selling digital products within the EU, and if you have registered for VAT MOSS, you need to do the following:

  • If you were previously using VAT MOSS and still continue to use it, and your Member State of Identification(MSI) was UK for VAT MOSS, the old VAT MOSS becomes invalid with Brexit. Therefore, you have to update your new VAT MOSS number by clicking Settings > Configure Chargebee > Taxes > EU region.
  • However, if you had previously used VAT MOSS but you do not use it anymore, you may have to update VAT numbers for the respective countries under the EU region. Click Settings > Configure Chargebee > Taxes > EU region > Manual > I sell digital products > Clear Tax > Manual > I sell digital products > No, I havent registered for VAT MOSS.

If you're selling non-digital products 

When your origin country is UK

Note

If you're selling non-digital products within UK, EU, and your organisation address is in the UK, following steps is a quick overview of what you need to do in Chargebee:

  1. Purge your current settings for UK from the Brexit banner in Configure Tax page.
  2. Configure tax for UK region seperately, and verify VAT settings based on the new UK tax laws.

To make necessary changes for Brexit in your Chargebee site, follow these steps:

  1. Click Settings > Configure Chargebee > Taxes.

  2. In the Configure Tax page, click Get Started from the Get your business ready for Brexit banner.

  3. If you have set UK as your origin country, a warning modal gets displayed. Click Yes, Continue. The previously configured tax details such as tax labels, tax registration number, tax rates, and so on for the UK and overriden countries (for crossing a certain threshold of sales per annum in respective countries) are removed.

If you are an organization selling non-digital products within the UK, you need to configure tax details for UK seperately. To configure taxes for the UK region in your Chargebee site, follow these steps:

  1. Click Settings > Configure Chargebee > Taxes.

  2. In the Configure Tax page, Click +Add Region and select United Kingdom from the drop-down.

  3. Under What type of product do you sell, click I sell non-digital products.

  4. In the Tax details modal, enter the following information:

    • Select the Tax label.
    • Enter your Tax registration number for UK.
    • Enter the Tax name.
    • Verify the Tax rate, and click Save. All non-digital products' sales (mapped to this profile) within UK will be charged at this rate.

  5. In the UK tax region page, verify the following settings in context of the new UK tax laws:

    • Price type: Select the appropriate price type for your checkout prices in the UK region.
    • Validation Options: VAT validation will be shown in a disabled state until the UK tax service becomes available. Until the UK tax service is available, make sure that you handle the VAT verification responsibility by yourself. You can disable the VAT field in your Checkout, if you don't want to use reverse charge and always apply VAT(not recommended).
    • Collect Tax Registration Number: Enable this option if you expect your customers to enter their VAT Number while subscribing to your products.
    • Use local currency to display VAT in invoices: When this option is enabled, the amount of VAT payable gets displayed in the invoice currency as well as the local currency of the place of taxation. You can also choose to display the total amount excluding VAT and the total invoice amount in the respective local currency. The exchange rate applied for this purpose is as per the rates listed in the European Central Bank(ECB) website.
    • VAT Exemption Note for Exports: This option is available when you organization address is based in the UK. If you export goods or services to other countries from UK as part of your business, enabling this option adds a note in the respective invoices that refers to the VAT exemption for export transactions. You can edit the note to add or edit the text.

If you are an organization selling non-digital products within the EU countries, the VAT application works as follows:

  • If you are selling physical goods to other businesses: 0% VAT is applied on reverse charge basis and the reverse charge note gets displayed in the invoice.
  • If you are selling physical goods to customers: 0% VAT is applied and the export note configured for UK gets displayed in the invoice. However, when you want to apply destination based VAT for such invoices, click Configure Tax > +Add Region, and select EU Region from the drop-down. Click I sell non-digital products and select the destination country as Origin.
  • If you are selling non-digital services to customers:

    • When your service requires origin based taxation for selling to private individuals, you can select the Apply tax rate of origin country option in the UK region. This applies origin based taxes for such transactions originating from UK that is mapped to this profile.

    • However, if you don't select this option, the non-digital products tax rate (if) configured for the EU region under the same profile gets applied.

When your origin country is in EU(not UK)

Note

If you're selling non-digital products within UK, EU, or outside EU, and your organisation address is in EU, following steps is a quick overview of what you need to do in Chargebee:

  1. Purge current settings for UK(if overriden) from Brexit banner.
  2. Configure tax for UK region seperately, and verify VAT settings based on the new UK tax laws.

To make necessary changes for Brexit in your Chargebee site, follow these steps:

  1. Click Settings > Configure Chargebee > Taxes.

  2. In the Configure Tax page, click Get Started from the Get your business ready for Brexit banner.

  3. If you have confirgured tax for the EU region, a warning modal gets displayed. Click Yes, Continue. Chargebee removes all your previously configured tax details such as tax labels, tax registration number, tax rates, and so on for the UK.

If you are an organization selling non-digital products into the UK, you need to configure tax details for UK seperately. To configure taxes for the UK region in your Chargebee site, follow these steps:

  1. Click Settings > Configure Chargebee > Taxes.

  2. In the Configure Tax page, Click +Add Region and select United Kingdom from the drop-down.

  3. Under What type of product do you sell, click I sell non-digital products.

  4. In the Tax details modal, enter the following information:

    • Select the Tax label.
    • Enter your Tax registration number for UK.
    • Enter the Tax name.
    • Verify the Tax rate, and click Save. All non-digital products' (mapped to this profile) sales within UK would be charged at this rate.

  5. In the UK tax region page, verify the following settings in context of the new UK tax laws:

    • Price type: Select the appropriate price type for your checkout prices in the UK region.
    • Validation Options: VAT validation will be shown in a disabled state until the UK tax service becomes available. Until the UK tax service is available, make sure that you handle the VAT verification responsibility by yourself. You can disable the VAT field in your Checkout, if you don't want to use reverse charge and always apply VAT(not recommended).
    • Collect Tax Registration Number: Enable this option if you expect your customers to enter their VAT Number while subscribing to your products.
    • Use local currency to display VAT in invoices: When this option is enabled, the amount of VAT payable gets displayed in the invoice currency as well as the local currency of the place of taxation. You can also choose to display the total amount excluding VAT and the total invoice amount in the respective local currency. The exchange rate applied for this purpose is as per the rates listed in the European Central Bank(ECB) website.

If you are an organization selling non-digital products into the UK and other EU countries, the VAT application works as follows:

  • If you are selling to businesses in UK: When you have not have registered for VAT in UK, 0% VAT is applied and the export note configured under EU region, if enabled, gets displayed in the invoice. However if you have registered for UK VAT, and configured UK as a tax region, 0% VAT is applied on reverse charge basis and the reverse charge note gets displayed in the invoice.
  • If you are selling to customers in UK: It is mandatory that you register for VAT in UK.
  • If you are selling to customers outside the EU but not UK(and not collecting taxes in that region): The export note configured under EU region, if enabled, gets displayed in the invoice.
  • If you are selling non-digital services to customers: When your service requires origin based taxation for selling to customers in UK, you can add add a non-digital tax profile for the UK region and add tax rate of the same origin country set up in EU region to the UK region. This will ensure the origin rate is applied.
Note
  • The VAT validation option is displayed in a disabled state until the UK tax service becomes available. Until the UK tax service is available, the onus of VAT verification falls upon yourself.

Northern Ireland Impacts 

The taxation rules for selling digital products and non-digital services from/into Northern Ireland will follow the same rules as the UK. You do not have to configure tax rules seperately for Northern Ireland for selling digital products and non-digital services in Chargebee. It will be covered as part of the UK Tax region.

See also
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