To add VAT or include it?

[Grey Alien]

So basically I have a U.K. Limited company and thus must charge VAT. Now I'm thinking that if you show a price for a game as £12.99 say and then add on VAT at 17.5% at the checkout this will p*ss a lot of customers off and could result in lost sales. So I was thinking of including it in the price that they see so there are no "hidden costs". BMT Micro confirms that they can do this which is great (although they said they charge VAT at the rate of the customer's country which is weird, as I thought they'd have to charge 17.5% on my behalf instead of an EU member state rate, which could vary).

However, I notice that some quite large portals DO add on the VAT at the sale stage.

Anyone got any opinions on this? I realise that including VAT in the final price reduces profit but it may increase sales in the long run.

[jeb_]

For me, personally, hidden VAT is a huge "turn off". There have been several times when I'm almost bought a game, but changed my mind at the checkout line because of +25% VAT (I live in Sweden).

On the other hand, if I really want the game, I will buy it anyway, such as Pax Galaxia and Fizzball. In these cases it's good to know that 1) I bought Pax Galaxia more than a month later, when I had settled that the price was actually $25 and not $20 as the site claimed, and that 2) when I bought Fizzball I already knew it would add +25% to the price.

[Paul-Jan]

We include VAT in the PayPal price. To make things worse, to keep things transparent to the buyer, we charge the same price for buyers inside and outside Europe. Effectively, this means we simply make more money on non-European buyers. Or less money on European buyers, if that's the way you want to see it.

Sales through ShareIt are different: we effectively do b2b deliveries to ShareIt (no VAT involved) while ShareIt charges VAT according to the german system. Which is good for us, as german VAT (16%) is slightly lower than ours (19%). At least, for now. AFAIK it will German VAT will also be set to 19% at the start of next year.

[Grey Alien]

interesting thanks. Yeah basically I have been selling some source code via Paypal and ShareIT and I make more money from non-european customers as I don't have to pay any VAT for them.

With paypal, I have to look at all the transactions and calculate the VAT manually and send it off to the VAT Office, but interestingly with Share-IT they deal with the VAT for me, they take it off my selling price and keep it themselves (presumeably forwarding to the correct authorities) and I don't need to account for it at all which is a bit easier. This is how BMT Micro wil do it to according to the person I've been emailing. But instead of charging a fixed VAT% like Share-IT, they'll charge a varying amount based on the customer's country. It would have been cool if they had a German branch ...

Actually bearing this in mind, although BMT Micro has a low % fee, if I'm going to include VAT and I sell via share it, I'll actually make up tp 9% more profit on some sales (difference between 25% VAT BMT will charge Sweden and flat 16% that Share-It will charge Sweden...) In the future it could be worth working out the average % VAT that I was charged for selling say 100 games, and seeing if selling via Share-It's flat 16% is more profitable even with their higher % charges...

[Olivier]

I think that absorbing VAT is the best practice. You might really lose sales when customers checkout and see a bigger price.

Like others, I noticed that portals added VAT and other things by default (CD shipping..) to the final price. As a customer, that kind of stuff puts me really down.
But I guess that the portal sales a very US centric so the VAT problem doesn't even show up in most cases for them. Am I wrong?

[Jack Norton]

I think that absorbing VAT is the best practice. You might really lose sales when customers checkout and see a bigger price.


I used to absorb it, but recently I started to add it. Didn't notice any difference in sales and I increased revenue (the average 20% vat usually subtracted). Maybe because even with VAT added the poor usd conversion is enough for people to buy anyway!

[Grey Alien]

thanks for the feedback. Jack that's an amazing fact and well worth considering because I guess it's true that unless I loose 17.5% of sales because of people being put off by the extra VAT, I may as well make the extra profit. Even loosing 10% of sales but making an extra 17.5% is worth it!!! wow.

[sillytuna]

I'd price it at the price point you want, and add VAT/tax where relevant. People buying software over the net are generally used to it, and I don't think you'll lose many buyers.

[Roman Budzowski]

I add vat and have quite many sales from Europe.

[Grey Alien]

hmm so now I'm considering swinging the other way into adding VAT on...

[Stridge]

Hi,

Roughly our sales are half from America and the other half from the rest of the world, about 15 to 20% are from the uk. Our payment service Emetrix add the VAT at each UK sales ( add no tax to the American sales.) and we never had any complaints about the amount. I guess the product as to be fairly priced. People from Uk, Sweden and the rest of Europe are use to this extravagant taxation I guess… :eek:

[Grey Alien]

Actually people (home users) in the U.K and Europe are used to VAT being included in the price for everything they buy (unless they are a builder or a business for example), so adding it onto games is a little unusual for us, yet seems to be the norm for downloadable Indie games for some reason.

[Nexic]

I think you should just add it. Say your game is $20 on the portals (who add VAT) that means you have to really sell at $20 (or less) to compete with them for sales. The portal is really selling it for more, but looks like it's even.

If you really want to include it then perhaps you should just price it lower ($17 or something) and add it on. That way you get the same amount but get to be more competitive.

Say you have someone who is prepared to pay $20, they aren't going to turn their noses up at $17 with the VAT added to make $20.

[Grey Alien]

Yeah, I was originally going to include it, but I might just add it on now.