Do I need to pay VAT on hobby income?

Alan3002 · 31-10-2019 4:13pm #1

Hey folks,

I have a website that's making a nice bit of money from online advertising and it's all a bit new to me. I have an accountancy friend who is helping me sort out my taxes at the end of the year/start of new year which is all well and good.

However, the year of 2020 could be a little awkward. He did some asking around and told me I might be liable to have to pay VAT if I exceed an income of €37,500 for the year 2020 (website only started making money halfway through 2019). But he's not sure if I'm counted as a service or not (informational website + ads).

I'm already halving all the income I make from this website by 50%

each month and putting it away for tax payment.

Would this be the norm? I'm also working a full time 9-5 job but unsure if that comes into play.

TitianGerm · 31-10-2019 4:18pm

Alan3002 wrote: »

Hey folks,

I have a website that's making a nice bit of money from online advertising and it's all a bit new to me. I have an accountancy friend who is helping me sort out my taxes at the end of the year/start of new year which is all well and good.

However, the year of 2020 could be a little awkward. He did some asking around and told me I might be liable to have to pay VAT if I exceed an income of €37,500 for the year 2020 (website only started making money halfway through 2019). But he's not sure if I'm counted as a service or not (informational website + ads).

I'm already halving all the income I make from this website by 50% each month and putting it away for tax payment.

Would this be the norm? I'm also working a full time 9-5 job but unsure if that comes into play.

What does your website facilitate? Do you sell ad space or do you facilitate customers getting their ads on other websites? Can you give us an idea of a general transaction? What was the level of income since you started?

Where are your customers based as well?

Is your friend an accountant? Most accountants wouldn't have to ask about to know the Vat thresholds. Do you mean the website only started making a profit during 2019 or you stated trading at that point?

Alan3002 · 31-10-2019 4:22pm

TitianGerm wrote: »

What does your website facilitate? Can you give us an idea of a general transaction? What was the level of income since you started?

Where are your customers based as well?

Is your friend an accountant? Most accountants wouldn't have to ask about to know the Vat thresholds. Do you mean the website only started making a profit during 2019 or you stated trading at that point?

My website is based on a card game and is purely informational. It contains a full card database where users can check the site and look at all of the card information and do things like favorites the cards, rate them, check the card prices from online stores, etc etc. There are ads on this site and this is where the income is being generated from (so I guess selling adspace?). We do not sell anything.

Userbase is worldwide but top 3 according to analytics are:
- United States
- Germany
- United Kingdom

My friend is an auditor but has done accountancy work in the past.
Halfway into 2019 was when I implemented ads, so it starting generating ad income then.

Keyzer · 31-10-2019 4:28pm

I'd expect, given its income, you'd have to pay tax on it.

Also, get yourself an independent tax advisor (wont be expensive) and you can tax deduct the fee from your income.

TitianGerm · 31-10-2019 4:36pm

Alan3002 wrote: »

My website is based on a card game and is purely informational. It contains a full card database where users can check the site and look at all of the card information and do things like favorites the cards, rate them, check the card prices from online stores, etc etc. There are ads on this site and this is where the income is being generated from (so I guess selling adspace?). We do not sell anything.

Userbase is worldwide but top 3 according to analytics are:
- United States
- Germany
- United Kingdom

My friend is an auditor but has done accountancy work in the past.
Halfway into 2019 was when I implemented ads, so it starting generating ad income then.

My best guess would be 23% as your selling the ad space but to be certain I'd contact Revenue through My Enquires on My Account to get their definite answer.

Who collects the money and then sends it to you? Do they issue you with any sort of remittance advice?

Alan3002 · 31-10-2019 4:44pm

TitianGerm wrote: »

My best guess would be 23% as your selling the ad space but to be certain I'd contact Revenue through My Enquires on My Account to get their definite answer.

Who collects the money and then sends it to you? Do they issue you with any sort of remittance advice?

Thanks. So that would be regular 50% tax (since I am already working full-time) + a possible additional 23%? If so, this would be a little disappointing.

I can try contact revenue to find out, or a tax advisor as someone previously mentioned.

This ad partnership is with an American company who approached me. They have ads on quite a few similar sites. Sorry not sure what you mean by remittance advice! I mean it when I say I am next to useless with this stuff.

Heres Johnny · 31-10-2019 4:44pm

Keyzer wrote: »

I'd expect, given its income, you'd have to pay tax on it.

Also, get yourself an independent tax advisor (wont be expensive) and you can tax deduct the fee from your income.

You don't need a tax advisor, just need any accountant. Tax advisors charge big big money and wouldn't be interested in the likes of a small hobby website. I know some accountants advertise themselves as tax advisors too but most aren't really.

Alan3002 · 31-10-2019 4:47pm

Heres Johnny wrote: »

You don't need a tax advisor, just need any accountant. Tax advisors charge big big money and wouldn't be interested in the likes of a small hobby website. I know some accountants advertise themselves as tax advisors too but most aren't really.

Good to know, thanks. Should I be looking for an independent accountant or something like an accountancy firm?

TitianGerm · 31-10-2019 4:49pm

Alan3002 wrote: »

Thanks. So that would be regular 50% tax (since I am already working full-time) + a possible additional 23%? If so, this would be a little disappointing.

I can try contact revenue to find out, or a tax advisor as someone previously mentioned.

This ad partnership is with an American company who approached me. They have ads on quite a few similar sites. Sorry not sure what you mean by remittance advice! I mean it when I say I am next to useless with this stuff.

If you took in 100k in ad revenue assume the 23% vat applied then your net income liable to income tax would be €81,300. From this you could then deduct the ex vat costs of running the website and business. You'd then pay tax on the remainder.

Heres Johnny · 31-10-2019 4:50pm

Alan3002 wrote: »

Good to know, thanks. Should I be looking for an independent accountant or something like an accountancy firm?

If there's an accountancy practice in your town go have a chat to them. Small practice, local customers. Some accountants don't have any staff some have small staff to do variety of tasks.
Don't go to a big practice anyway

Alan3002 · 31-10-2019 4:53pm

TitianGerm wrote: »

If you took in 100k in ad revenue assume the 23% vat applied then your net income liable to income tax would be €81,300. From this you could then deduct the ex vat costs of running the website and business. You'd then pay tax on the remainder.

That makes sense. Thank you!

henryd65 · 31-10-2019 5:47pm

I assume you are based in Ireland ?

I'm no expert, but my understanding is:

If you selling to US customers, vat is not chargeable.

If you are selling to UK or EU non vat registered customers, then vat is chargeable. If you are selling to UK or EU vat registered customers, then vat is not chargeable but you still need to be vat registered.

Vat can be very complicated so a chat with an accountant etc. is needed. I would not depend on the Revenue for advice on this.

thegolfer · 31-10-2019 8:02pm

Briefly reading the above the service you are supplying advertising services is in a B2B context, business to business.

For VAT purposes the place of supply rules kick in and ultimately the where ever the customer is established\ located, they account for the VAT if in the EU. If outside the EU then no VAT applies.

Irish suppliers will not normally charge Irish VAT on services to a business established outside Ireland. Instead, the business customer will self account for the VAT in their State.

You will still have a requirement to register for VAT and claim input VAT on your outgoings.

Sleeper12 · 31-10-2019 8:13pm

You need to know if you are selling something (ad space) or providing a service of some kind.

If it's a service & your income goes over 37500 then you must register for vat and charge 13.5 percent VAT

If its sales then you can turnover up to 75k before registering for vat. For sales you must charge 23 percent VAT.

Once registered for VAT you can claim VAT back on business expenses. Computer, broadband, phone, tablet, accountant fees etc

thegolfer · 31-10-2019 9:18pm

Sleeper12 wrote: »

You need to know if you are selling something (ad space) or providing a service of some kind.

If it's a service & your income goes over 37500 then you must register for vat and charge 13.5 percent VAT

If its sales then you can turnover up to 75k before registering for vat. For sales you must charge 23 percent VAT.

Once registered for VAT you can claim VAT back on business expenses. Computer, broadband, phone, tablet, accountant fees etc

He is supply a service not good I assume you refer to as "something".

VAT rate is 23% not 13.5%.

€75,000 turnover refers to goods. In this instance €37,500 applies as the op is supplying services.

Alan3002 · 01-11-2019 8:53am

Thanks guys. A lot to mull over here.

I shot a few emails to accountants here in Limerick so we'll see how that goes. Who knew opening a hobby website and generating money from it could be so complicated :P

eusap · 01-11-2019 10:43am

not sure why people are complicating this and i wonder about the level of training in ireland

Supplier is the OP and he has a website that he sells adverts space on.

Customer is the US based advertising agency, at the end of each month the Supplier (OP) should create an invoice to the US customer at 0% VAT (outside of EU.)

The question that needs to be asked to Revenue is where is the place of supply, if the ad is seen in Ireland/EU i assume VAT should be charged to the customer. If outside of EU no VAT to be charged,

carltonleon · 01-11-2019 10:51am

Alan3002 wrote: »

Thanks guys. A lot to mull over here.

I shot a few emails to accountants here in Limerick so we'll see how that goes. Who knew opening a hobby website and generating money from it could be so complicated :P

Perhaps log onto some of the Domain Forum websites like DNFORUM.COM
They is a lot of info in there in relation to domains but also about websites and running them and there are a hell of a lot of knowledgeable people on there

Alan3002 · 01-11-2019 1:05pm

eusap wrote: »

not sure why people are complicating this and i wonder about the level of training in ireland

Supplier is the OP and he has a website that he sells adverts space on.

Customer is the US based advertising agency, at the end of each month the Supplier (OP) should create an invoice to the US customer at 0% VAT (outside of EU.)

The question that needs to be asked to Revenue is where is the place of supply, if the ad is seen in Ireland/EU i assume VAT should be charged to the customer. If outside of EU no VAT to be charged,

Thanks for the input! Regarding the last bit:

How would we determine who exactly has viewed the ad? We can determine who views the site through analytics but not necessarily who views the ad.

For example, lets say we get 10 people on the site:

- 7 based in USA
- 2 based in Germany
- 1 based in Ireland

So we get a hit for the Irish based person visiting the site. How do we know if they are viewing the ads? They could for example be hitting the site with adblock and not receiving any ads.

Maybe I'm over-complicating it and regardless the 1 hit from the Irish person will count no matter if they are using adblock or not.

thegolfer · 01-11-2019 2:31pm

Alan3002 wrote: »

Thanks for the input! Regarding the last bit:

How would we determine who exactly has viewed the ad? We can determine who views the site through analytics but not necessarily who views the ad.

For example, lets say we get 10 people on the site:

- 7 based in USA
- 2 based in Germany
- 1 based in Ireland

So we get a hit for the Irish based person visiting the site. How do we know if they are viewing the ads? They could for example be hitting the site with adblock and not receiving any ads.

Maybe I'm over-complicating it and regardless the 1 hit from the Irish person will count no matter if they are using adblock or not.

The viewing rate has no impact on the VAT treatment.

Advertising is being paid for by the US customer, this this is the only transaction you consider. Thus no VAT applies and is exempt, outside the scope of Irish VAT.

eusap · 01-11-2019 6:51pm

this link from revenue has a good table to work it out

https://www.revenue.ie/en/vat/vat-on-services/when-is-vat-charged-on-services/general-place-of-supply-rules-for-services.aspx

tanit · 02-11-2019 12:55pm

My guess is that the ads he is having on his website are going to be placed by someone like Google, or Bing which are going to be the biggest ad online selling platforms. They both have bases in Ireland and you are going to be providing the services to them and they deal with the different clients (they are the middle man). Your services are going to be more than likely to an Irish client that is Vat registered and you are going to need to charge VAT. Any other ads from clients outside the EU will be outside the scope of Vat.

It might be possible they are already accounting for that Vat somehow in the invoices transaction reports as they are going to need themselves that Input credit for Vat purposes. Just check the invoices they prepare when they send you the payments for the revenue your website has generated in ads. If you don't find them straight away send a query but they need to account themselves for that Vat otherwise they are going to be losing a significant of Vat they can recover.

Do I need to pay VAT on hobby income?

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