Hi, I'm a proffesional developer trying to move into indie at my spare time, I'm trying to figure out how much pure money I would get per copy if I sold a game at X price. The only thing I've calculated with it now is the PayPal fee (which is 2.9% + 0.3USD), should I include some kind of taxes on that? In other words, is it legal for a normal person (no company or anything) to start selling software (that I've made 100% myself) on the internet (no hard-copy just activation-code) and just have the money sent straight to my account? Or do I have to declare and pay taxes on that? (I really no nothing about taxes). I live in UK and Sweden.

Are you talking about sales taxes or income taxes?

Since you're working with taxes under two countries (UK and Sweden) you should check with accountants or tax lawyers in both countries. You should be able to call the tax agencies directly and ask them, but they might not be qualified to give you an authoritative answer.

Internet sales are tricky for sales taxes, since online distribution means you can't identify the location of the sale. In the US, you can prominently state that the buyer is responsible for paying all required local taxes. For states with taxes, the annual tax forms require you to list all online, mail order, and other purchases for which you didn't pay taxes at the time of purchase.

You will also need to report the income on your own personal taxes, or business taxes if you have a corporate entity. Generally it is easy for your personal taxes to list alternative income sources, but if you have incorporated a business you should talk with an accountant for that as well, since your income tax is probably split between the two countries of residence.

Quote: Original post by frob
Are you talking about sales taxes or income taxes?

I don't know, but hopefully only one of them :P
Do you really have to pay income tax if you already payed sales tax? I thought income tax was just for working for a pay-check (which I am at the moment).

Quote: Original post by frob
Since you're working with taxes under two countries (UK and Sweden) you should check with accountants or tax lawyers in both countries. You should be able to call the tax agencies directly and ask them, but they might not be qualified to give you an authoritative answer.

Internet sales are tricky for sales taxes, since online distribution means you can't identify the location of the sale. In the US, you can prominently state that the buyer is responsible for paying all required local taxes. For states with taxes, the annual tax forms require you to list all online, mail order, and other purchases for which you didn't pay taxes at the time of purchase.

You will also need to report the income on your own personal taxes, or business taxes if you have a corporate entity. Generally it is easy for your personal taxes to list alternative income sources, but if you have incorporated a business you should talk with an accountant for that as well, since your income tax is probably split between the two countries of residence.

Oh dear.. that sounds like a mess. (damn goverment!)
It sounds like I need to really learn this, maybe from just calling the tax agency like you said (I prefere not to include any costly accountant).
Thanks for the reply!

Quote: Original post by Susan82
I don't know, but hopefully only one of them :P
Do you really have to pay income tax if you already payed sales tax? I thought income tax was just for working for a pay-check (which I am at the moment).

Sales tax is a tax paid by the buyer, which you have to collect for the government and forward on to them. You have to pay income tax, or corporation tax if you are a company on the money that you earn.

Quote: Original post by Susan82
Do you really have to pay income tax if you already payed sales tax? I thought income tax was just for working for a pay-check (which I am at the moment).

Income tax is a separate tax from sales tax. Income tax, as the name implies, is a tax on your income. It doesn`t matter where does the income actually come from. Unless there`s specific clause at the tax law, saying that these and those income sources aren`t taxed, you have to pay the tax. Check the tax law for the actual value of the tax. Several countries have fixed tax price - i.e. 19% no matter how high the income is. The rest of the world uses progressive taxing system, where there are several ranges of income, each range associated with the actual sum of tax being paid, plus some percentage of the difference between your income and lower-bracket value.

You may not have to pay the tax from whole income. Most of the countries in this world allow deductible items - i.e. you can deduct some amounts from your total income (e.g. you can deduct some fixed amount for yourself or your non-working spouse and/or children) and only the remaining amount is actually being taxed.

Oh, and since you work in both countries, I`d recommend getting a good (and probably more expensive) tax accountant that knows both tax laws and can assist you in correct calculation of taxes.
AFAIK, UK&Sweden have both singed the charta that agrees upon no double-taxation - i.e. as a citizen of Sweden, once you paid your taxes in UK, you won`t have to pay them again in Sweden, although you are citizen of Sweden (or vice versa). There might be some issues though, for example if amount of taxes paid in UK is lower than it would be in Sweden, you may have to pay the difference into Sweden government budget.
From the top of my head, it`s also important whether you are a tax domicil of one or the other country, which depends on number of consecutive days you spent in relevant country - e.g. more than 180, or so).

These are just few of the issues, and as you can see, it`s advisable to check with some knowledgable tax expert on this.


EDIT: Oh, I almost forgot the best one : Should any taxman within next 5 years (or whatever the period is under the relevant law in your country) from now make a thorough check upon you, and find some issues, the interest of the [fine+unpaid tax in question] shall be counted from the day when the tax was due in given year, so it could very well end up being 4-5 years (or even more). During which, of course, the total amount raises and raises and raises... In our country there is a law that the interests can`t be higher than double the amount of claimed amount. But AFAIK, UK doesn`t have this limitation, so the amount might raise indefinitely.
Which is fun, since recently I watched on TV that in Australia, the authorities can simply take any of your belongings (including car) if you don`t pay the stupid parking fees. They showed one unhappy chap whose car has been towed away for auction because of some $1000 (accumulated from some much smaller fine).

You may ask - Where am I headed using this example ? This forum is the absolutely last place on planet Earth where you should be asking such question. Invest into proper tax consultant and double check with another one (I assume you are aware of fact that they don`t always come into consensus regarding the explanation of the law, right ? At least that`s what I`ve seen when our previous company has been audited by a world-infamous audit group) if you wanna sleep well.

[Edited by - joe1024 on September 7, 2007 12:43:07 PM]

Wow, those are good answers.

You guys are seriously starting to scare me now, I've never told my swedish goverment that I've moved to UK and is making money, just the very thought that I would have to pay swedish tax on that makes me shaky, although it does sound unlikely (...right.. RIGHT!?!? :P).

"if amount of taxes paid in UK is lower than it would be in Sweden" < UK income-tax is much lower than Sweden.

Let's forget I mentioned Sweden for now, cuz I don't live there, I just mentioned it because if I would go full-time indie (which is not my intended first step into indie) I might move back to sweden, but assuming my move has been correctly done (which I'm a bit nervous over after all this tax talk) let's just say I work and live in UK (and are a citizen I assume).


I'm affriad an accountant is not really possible, while I do have big long-term plans I really just want to start out really really small where even in worst case no one would buy my product I wouldn't lose any money (only lots of time, but atleast I would have learned from it).

Atleast now I'm starting to understand the concept of income tax, if I have understood right it's exactly the same as I'm paying with my monthly pay-check (which is 25% at the moment, damn goverment!) (depending on how much I actually make selling indie software ofc).
The sales tax in UK is 17.5%.

So basicly, for anyone else who might be interested, this is the numbers I've gathered:

(£pounds)
Selling price 3 5 10 15 20
PayPal Fees -0.237 -0.295 -0.44 -0.585 -0.73
Income Tax -0.75 -1.25 -2.5 -3.75 -5
Sales Tax -0.525 -0.875 -1.75 -2.625 -3.5
Total profit 1.488 2.58 5.31 8.04 10.77

Copies sold: Money earned:
10 14.88 25.8 53.1 80.4 107.7
100 148.8 258 531 804 1077
500 744 1290 2655 4020 5385
1000 1488 2580 5310 8040 10770
10000 14880 25800 53100 80400 107700
50000 74400 129000 265500 402000 538500
100000 148800 258000 531000 804000 1077000

(edit: nuts, those values are all neatly orginized into rows in the msg but seems when I post they look a bit messy.)

Assuming you are just in one country, and assuming you are doing business as yourself and not as a formal corporate entity, and assuming you won't call the tax office....


For the sales side: During the purchase process you should make it clear that they (the customers) are responsible for all taxes, duties, and fees their government may require. Also don't collect any tax money from them since you need to get tax ID numbers from your government before you can do that. Your local tax adviser or business lawyers can give you additional regional advice.

For the income side: If you make very little money (two-digit income) then you can report it on your annual forms as taxable income. If you make any more than pocket change (three or more digits) you will probably have to file an additional tax form. In the US it is a Self Employment form (Schedule SE), but somebody in the UK can probably help you out for those details. Even if you aren't strictly required to file the separate form, it may be a good idea anyway to help document both the existence and cash flow of your nascent business.


If any of those assumptions are false, then you really need to ask a professional tax adviser or at least your local tax office.

Thanks :)
The basics of it is starting to make sense now, and for more exact info and numbers I will check with maybe the tax office or something like you said when it's time for that.

But I'm not sure what you mean by letting the customer pay the sales tax, how would a customer possibly fill out papers and pay taxes to play a shareware game? :P
Also on everything I order online it seems to be VAT (which I think is sales tax) included.

VAT is not sales tax. It's calculated differently (value added rather than total value of transaction). Additionally, VAT is always paid by the seller of the goods or services, not the buyer. So YOU are repsonsible for correctly paying any VAT due on games you sell, not the buyer.

I'd really suggest talking to a tax accountant about this sort of thing.

Quote: Original post by Jerax
Additionally, VAT is always paid by the seller of the goods or services, not the buyer.

That is wrong.

Quote: customs & revenue
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_Home
VAT is a tax on the final consumption of certain goods and services.

VAT is paid by the final consumer (the last person in the chain - the customer) but is collected and paid to Customs & Revenue by the seller. If I buy something for which VAT is applicable from a shop then the price I pay includes VAT and, unless I am buying it to sell on, I can not claim that back - I have paid VAT.

The supplier who sells me the product is responsible for paying my VAT to customs and revenue. They also pay VAT to their supplier when the buy in the product, but as they are not the final consumer of that product they can claim back the VAT from C&R. (In actuality they claim or pay the difference between the two).

[Edited by - Obscure on September 12, 2007 2:21:15 AM]