WordPress is the driving force behind 34% of the total websites in the world. It is the CMS market leader by far, cornering about 60% of the market share. Now, imagine the number of freelance developers and businesses providing WordPress-related services. The open-source CMS is a major player in the web development industry. This means that these businesses are not immune to economic changes and other related developments. One such issue that is going to affect entrepreneurs dealing in CMS-related businesses is Brexit. The decision of the United Kingdom to leave the European Union is bound to have serious repercussions for all industries. In this article, we will discuss the impact of Brexit on WordPress businesses like theme and plugin development companies.
What is Brexit?
Brexit is the term coined for Britain’s exit from the European Union. A referendum was conducted on 23 June 2016 in which over 51% of the participants voted to support the decision to leave the EU. This forced the British government to start the process of leaving the group of nations which should have been completed by March 29 this year. However, the process is still not over and now the new deadline is 31 October 2019. Preferential treaties between the nations belonging to the group allowed people and goods to move freely. A common system of regulations and taxes was used to govern trade which was beneficial for entrepreneurs as well as customers. However, when the UK leaves the organization, all the agreements will cease to exist. This will create hassles for businesses unless Britain negotiates a deal either with the EU or separately with other nations.
In order to understand the impact of the severance of ties on WordPress-related services, we will have to first know the present tax framework in operation.
VAT Collection System In The European Union
Companies which sell digital products in the European Union have to collect Value Added Tax (VAT) on each sale. Let’s say you sell WordPress theme customization services. Now, every time some pays the specified fee for downloading a template crafted by you, VAT must be a part of the cost. The specific tax condition which will be applied to a transaction will depend on a couple of factors. The first is the location of your business and the second is the location of your client. Let’s understand the VAt conditions in a clear manner which will help in understanding the impact of Brexit on WordPress businesses.
When The WordPress Company Is Based In EU
In case a WordPress-related business is located inside the EU, then it must collect local VAT from individual and business clients in its home country. However, they do not need to charge any tax on businesses which are located in a nation other than their home country. That specific corporate customer will account for the levy under the reverse charge mechanism. The digital product seller must collect and store the client’s VAT number for tax exemption. The tax charged to an individual client in another European nation must be based on that nation’s VAT rate. There is no need to collect the tax from any kind of customer based outside the European Union.
When The WordPress Company Is Based Outside EU
When the WordPress-based digital product seller is located outside the EU, then it does not need to charge any tax to business clients based in the EU. The customer will account for the tax as per the reverse charge mechanism. However, they will have to collect the tax from individual consumers who are based within the European Union. The tax must be collected on the basis of the VAT rate in the consumer’s nation.
Sellers who are not based in any member country but sell products in the region have to register a VAT Mini One Stop Shop (MOSS). This is necessary for filing quarterly tax reports in one EU country for the sales made across the region.
Possible Post-Brexit Scenarios
The VAT MOSS system allows business owners to simplify their tax calculations for all sales made within the union. In case, such a facility was not available, they would have had to calculate the tax according to the separate slab of each country. With Brexit now inevitable, there are two ways in which it can happen. Let’s see how software sellers will be affected in each one of them.
There can be a scenario where Britain exits the group without making a deal about trade and other financial issues. This can create hassles for digital product vendors. They MOSS system will not be applicable to the UK. This means that they will have to file separate returns, one under the UK’s VAT system and the other for EU under MOSS.
Exit With Deal
If Britain makes an agreement on key commercial issues, then things may be simpler for businesses. They may be provided with a mechanism to file returns. It can also happen that the UK cuts separate deals with different EU nations. Then an entrepreneur will have to make arrangements according to the provisions of the agreement.
The European Union is one of the most important trade groupings in the world and Brexit will have a profound effect on businesses like WordPress customization and plugin development services. It will be sensible for such entrepreneurs to get in touch with financial advisors to prepare themselves for the change.