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Frequently asked questions about VAT for EU freelancers

Active Member
Alex C Member Since: Jun 22, 2015
41 of 316

I am sorry but still is not clear.

 

Who will be charged for VAT. Me or my client?

 

 

Active Member
Velin S Member Since: Sep 18, 2015
42 of 316

YOU!!!

Community Leader
Simon W Member Since: Mar 7, 2008
43 of 316

Why when the service charge is for services related to financial transactions which are exempt from VAT are you charging VAT?

 

I can see the basis behind it for purchase of premium memberships and extra connects but not for the service fee which is to cover the financial element such as processing the payments that you do for us. PayPal or any other payment processor doesn't charge VAT (and charges much less than the current 10% which with VAT is going to jump to atleast 12% for most of us in EU countries)

Community Manager
Garnor M Community Manager Member Since: Oct 29, 2014
44 of 316

Simon, the services I highlighted above in #3 have been deemed electronically supplied services and as such, are subject to VAT at the place where the customer (i.e. the freelancer) is established or resides. Upwork is responsible for charging, collecting and remitting this VAT when providing services to our  EU customers.

Community Leader
Simon W Member Since: Mar 7, 2008
45 of 316

@Garnor M

 

So when I pay a service fee on my earnings what exactly am I paying that for. Apart from you dealing with the finacial side what on earth you you actually provide me as a service? The answer is absolulty nothing

 

We don't see Paypal having to add VAT onto their service fees for processing the money side BECAUSE its a financial service and is VAT exempt. What you provide us when we pay the service fee is a finacial services (otherwise it wouldn't be linked to our earnings) so should also be exempt.

 

As I have said I can understand the VAT charge on the other two things, they are both digital services and as such should have VAT added but the service fee is for a finacial service and adding VAT is just plain wrong. Paypal or any other payment handling service doesn't do it, a phsyical freelance agency doesn't charge VAT on their service fee for handling the money side either so why ar eyou 

 

 

Community Guru
Joachim M Member Since: Mar 23, 2015
46 of 316

@Simon W wrote:

@Garnor M

 

So when I pay a service fee on my earnings what exactly am I paying that for. Apart from you dealing with the finacial side what on earth you you actually provide me as a service? The answer is absolulty nothing

 

We don't see Paypal having to add VAT onto their service fees for processing the money side BECAUSE its a financial service and is VAT exempt. What you provide us when we pay the service fee is a finacial services (otherwise it wouldn't be linked to our earnings) so should also be exempt.

 

As I have said I can understand the VAT charge on the other two things, they are both digital services and as such should have VAT added but the service fee is for a finacial service and adding VAT is just plain wrong. Paypal or any other payment handling service doesn't do it, a phsyical freelance agency doesn't charge VAT on their service fee for handling the money side either so why ar eyou 

 

 


Simon, I said that before, Upwork is not a financial service. They are comparable to a broker connecting you and possible clients on their platform. 

Community Leader
Simon W Member Since: Mar 7, 2008
47 of 316

@Joachim

 

No they aren't a broker connecting clients and freelancers, atleast not at the stage of the service fee being paid. That connection part is already covered by the VAT on the membership and Connects

 

When it gets to the stage of having the work they become a financial service. They charge the client on our behalf, process that payment, distribute it to us and charge a fee for doing so which is the very definition of a financial service. If they were t a financial service then the service they offer would be a fixed fee each month not one that's based around our earning. After all if we aren't paying them for financial service they provide why exactly should someone who bills a single client $2000 a month be paying more than someone who only bills a single client $200 for getting the exact same service?

Community Guru
Joachim M Member Since: Mar 23, 2015
48 of 316

@Simon W wrote:

@Joachim

 

No they aren't a broker connecting clients and freelancers, atleast not at the stage of the service fee being paid. That connection part is already covered by the VAT on the membership and Connects

 

When it gets to the stage of having the work they become a financial service. They charge the client on our behalf, process that payment, distribute it to us and charge a fee for doing so which is the very definition of a financial service. If they were t a financial service then the service they offer would be a fixed fee each month not one that's based around our earning. After all if we aren't paying them for financial service they provide why exactly should someone who bills a single client $2000 a month be paying more than someone who only bills a single client $200 for getting the exact same service?


Simon, this is a mute discussion. Not a single one of such portals have been recognized as financial service by the EU. All of them are service providers similar to brokers dealing with cars or whatever. The financial services aspect is minor. 

Community Leader
Simon W Member Since: Mar 7, 2008
49 of 316

Its not minor, its pretty much their who business. The money they make isn't in charging for connects or membership its in the their payment processing fee

 

And according to HMRC this is the definition of a financial service that deals with money

 

Dealing with money

Dealing with money includes financial transactions of a kind routinely, but not necessarily, carried out by banks, building societies, bureaux de change and similar institutions. To be dealing with money you must be carrying out a financial transaction. Financial transactions that involve dealing with money include:

  • the acceptance of money on account
  • money transfer services
  • exchange of legal tender

 

That is exactly what Upwork is doing as such their fees for that part of the business should be exempt. A business can have products that are exempt from taxes and other products that arent so there is no reason they can't and shouldn't be doing that in this case.

 

 

Perhaps if Upwork wants to reduce the service fee then paying VAT wouldn't be as much of an issue or if they want to scrap the processing fee completly and move to a complete membership fee basis like other services that claim to not be offer finacial services (for example something like Freshbooks where all the finaical aspects are handled outside of the freshbooks setup) but they can't have their cake and eat it. Especially when they lock us in to using their financial services when we would be perfectly able to pay our membership fee for the client introductions and then move the financials outside of Upwork with little trouble and much lower fees

 

 

Community Guru
Joachim M Member Since: Mar 23, 2015
50 of 316

@Simon W wrote:

Its not minor, its pretty much their who business. The money they make isn't in charging for connects or membership its in the their payment processing fee

 

And according to HMRC this is the definition of a financial service that deals with money

 

Dealing with money

Dealing with money includes financial transactions of a kind routinely, but not necessarily, carried out by banks, building societies, bureaux de change and similar institutions. To be dealing with money you must be carrying out a financial transaction. Financial transactions that involve dealing with money include:

  • the acceptance of money on account
  • money transfer services
  • exchange of legal tender

 

That is exactly what Upwork is doing as such their fees for that part of the business should be exempt. A business can have products that are exempt from taxes and other products that arent so there is no reason they can't and shouldn't be doing that in this case.

 

 

No Simon, that's what the Elance Escrow Service is doing for them. All of this is handled by the Elance Escrow Service for Upwork.

 

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