VAT and Freelancers
I've been working as a freelancer through PPH for a year now and there is one issue that is a serious problem in the system and it needs to be addressed. I have raised it through support tickets but I feel the need to open the discussion to the "community". This issue is VAT and how it affect freelancers who are registered for VAT.
1. Buyer Location
When a project is posted the buyer's country is shown. This is not accurate. For example I saw one who gave their location as United Kingdom and then asked for a conference call to a different time zone. I have also seen documentation that describes a project that suggests a different country location. I am registered in the United Kingdom and as such I have to charge 20% VAT to any customer who is also in the United Kingdom. If a customer is in another EU member state I need their VAT number, if they are registered. This is a legal requirement. I am not being awkward about this, I am trying keep my accounts legal. As a software developer I am selling services, not goods, and the place of supply is determined by the customer's location (where the service is "used and enjoyed") and in some cases, their VAT status. For EU exports I have documentation to complete with threats of sanctions if it is not done.
2. Showing VAT in the quote.
When a freelancer submits a proposal with a fixed price there is no provision for itemising the VAT. When I set the price, I show the breakdown of net price and VAT in the description, and this works. It does not work when the buyer sets the budget. In that case if I accept the buyer's budget, I cannot then add VAT. The budget becomes the inclusive price and I lose 1/6th of the value of the project in VAT. For example I completed a project yesterday fo £50, which was the buyer's budget. I invoiced the buyer for £41.67 + VAT.
A VAT registered freelancer needs to know if the buyer is also VAT registered. If the buyer is registered, they will be able to reclaim the VAT. If two freelancers submit a propoasl for £100 and one is VAT registered and adds the VAT to the £100, one proposal is £20 more than the other. If the buyer is VAT registered, these two proposals are effectively the same price. The VAT registered freelancer is at a serious disadvantage. Any small business that is VAT registered has this problem but usually they know if their customer is VAT registered or not. PPH conceal this information.
This raises the question that if the freelancer does not know a) the location of the buyer and, b) the VAT status of the buyer, then perhaps the freelancer is not working for the buyer but is actually working for PPH. In that case the situation becomes much more simple and there is a supply chain which goes from freelancer to PPH to buyer with VAT added at each stage. In that case PPH would charge VAT to every buyer, where applicable, and the legal obligation to find the place of supply falls to PPH.
I cannot stress enough how important this issue is. The project I did yesterday afternoon was £50 at the bid stage, but after paying the VAT myself (because there was no method of adding it to the price) and then paying the PPH service fee, I am left with £35. A big fraction has been lost to VAT where better accounting from PPH would most likely have resulted in the buyer simply adding VAT to the price and reclaiming it.
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Official comment
Many thanks for your suggestion. I will pass it on to our product team.
Please let me know if I can help you with anything else.
Comment actions -
My latest correspondence with PPH on this was in November and they accepted that it was a problem and they are looking into it. I'm not aware that anything has been done. The forum is still full of people complaining that their location is wrong and buyers are specifying budgets that are inclusive of VAT with no method for the seller to add VAT to the price. There is still no indication of whether a buyer is VAT registered or not.
For projects where the buyer sets the budget, VAT is still a discount scheme funded by the freelancer rather than a sales tax. It's still a mystery as to where your customer is actually located, whether you charge them VAT or not and whether they can reclaim it if you do.
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This is should have been made crystal clear for the start.
There are several companies that use PPH that dress them selves up as a "freelancer". How are they working with this issue?
VAT is 20% + the 24% PPH fees, that leaves the freelancer with 56% of the original figure. And the FREELANCER IS DOING ALL THE WORK!
I think PPH should make this more official and transparent. -
This issue has never been addressed and I am not aware of any changes that have improved the situation.
It is perfectly legitimate for a freelancer to be registered for VAT, even if they are below the threshold. It makes sense to be registered if the bulk of your clients are registered because you are in the middle of the supply chain. You reclaim the VAT you pay and your clients reclaim the VAT you charge. You just have to be clear with the price to make sure that both parties know whether VAT is included or not, and of course the client cannot be anonymous. The problems start when you have somebody like PPH who operate as a cross between Delboy Trotter and Father Ted.
I ran into another problem recently when I raised an invoice and couldn't remember if the VAT was added or taken off. There is no preview option on an invoice so I had to cancel it and write it again when I realised I had under charged. -
I have had more correspondence with PPH on this issue and they have downgraded the issue from "looking into it" to "nothing to do with them and they have no intention of ever doing anything about it." The replies that they gave me were, quite frankly, insulting.
I did recently pick up a job where I submitted a proposal with 20% added and an explanation that I wanted to charge VAT, and I was still awarded the project. That is a first for me, usually I don't hear back from a buyer if my bid is higher than their budget.
On the other side, I had a recent project where I accepted the budget and only when I sent the invoice did it become apparent I had worked for a VAT registered company and so I had paid the VAT out of my own pocket when it needed to be added to the project, but by that time the prices had been fixed and the project completed. This is the whole point that I've not been able to get across to PPH is that VAT between businesses is simply an accounting exercise, but it needs to be clear when a price contains VAT and when it does not. The way PPH operate the VAT registered buyer pays less and the VAT registered freelancer (and also PPH) receives less.
The buyer location issue has not been addressed. Now if a buyer is listed as "United Kingdom" but I'm suspicious about it, I just don't bid. I have streamlined my bids anyway and avoid anything that I think will waste my time. -
Hi Aditi,
I gave up asking about this. In the last correspondence I had from them on the subject I was told it was my fault and I needed to have better negotiating skills to get the buyer to pay the VAT.
I rarely apply for any projects on PPH now and am only really using it for occasional repeat work with existing customers. The standard of projects has fallen so much it is a waste of time even reading the descriptions. -
I see nothing has changed with this.
PPH really are a terrible company, they screw the freelancers big time.
The fact that they charge the VAT to the freelancer and not the buyer is dodgy in itself, they are obviously using some legal loophole to do this.I do advise every client that I need to add PPH fees and VAT to any invoice, but they always kick up a stink when I do this, even though it was mentioned in the original proposal.
And I have to suck it up every time, otherwise they just refuse to pay and then there is nothing you can do ss PPH always side with the buyer and do nothing to help.
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