WooCommerce Subscriptions Guide to VAT 2015 Changes

This guide provides information on how to update subscriptions created before 1st January 2015 using the WooCommerce Subscriptions extension in order to be compliant with the 2015 VAT changes that come into effect on 1st January 2015. If you have not already done so, you should read blog post about WooCommerce VAT 2015 changes and options for making WooCommerce compliant with the 2015 VAT changes. Please note: This guide is not intended to provide legal or accounting advice. It is a practical guide on how to change subscriptions under different circumstances. It does not provide information about what needs to be changed (e.g. which tax rates need to be applied) or whether those changes are required in your store. Please seek legal counsel and accounting advice in order to determine what, if any, changes your store needs to make.

The problem

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The fundamental issue with a subscription is that the customer signed up for the subscription before the 2015 VAT changes came into effect. The terms of the subscription, including the amount of tax to be charged for each recurring payment, was set at that time. However, the subscription may have payments processed after the 1st January 2015 using those terms. If you have no subscriptions that require an automatic recurring payment after 1st January 2015, you most likely do not need to apply any of the information in this guide. Configuring WooCommerce to be compliant with the VAT changes should be sufficient as those changes will be applied to new subscriptions.

Manual subscriptions

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Subscriptions that require manual renewal use the normal checkout process for each recurring payment. As a result, the tax rates configured at the time of renewal will be charged. If all of the subscriptions in your store use manual renewal, then you should only need to configure WooCommerce to be compliant with the VAT changes and those rates will be applied to each recurring payment.

Subscriptions with automatic recurring payments

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Subscriptions with automatic recurring payments use the tax rates calculated at the time of sign-up to determine the amount that should be charged for each recurring payment. As a result, existing subscriptions may charge an incorrect tax amount for payments processed after the 1st January 2015. For the purpose of determining the appropriate action needed to update your subscriptions, the subscriptions can be categorised into 3 different types:

a subscription that can be changed and does has enough information to determine the required changes;
a subscription that can be changed but does not have enough information to determine the changes; and
subscription that can not be updated.

Can the subscription be changed?

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A subscription using automatic recurring payments can be updated if the payment gateway used to purchase the subscriptions supports changes to the recurring amount. You can find out if the payment gateway you are using to process automatic payments provides recurring amount changes using the Payment Gateway feature matrix.

Does the subscription have enough information?

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The new VAT laws require evidence of the customer’s location. Because recurring payments are processed without any interaction from the customer, the only evidence available for the transactions is the information collected at the time of signup. You will need to check with your accountant if the information on the orders used to purchase your subscriptions include the evidence required for calculating VAT. You can view this information on the Edit Order screen. Without any customisations, WooCommerce will collect both a billing address and IP address for the customer and include this on the order.

Changing subscriptions

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For subscriptions which can be changed and which have enough information to determine the required changes, you can change the recurring totals to set the tax and total amount charged for each future renewal to reflect the correct amount that should be charged under the new VAT rules.

Updating other subscriptions

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If you have subscriptions which can not be changed or which do not have enough information to calculate the correct VAT, you will need to either:

change the subscription to use manual renewal;
require customers switch subscriptions to create a new subscription; or
cancel the subscription and require the customer to sign-up again.

Changing a subscription to use manual renewal

To change a subscription to manual renewals, and therefore have taxes calculated at the time of renewal, follow the guide on changing subscriptions with automatic payments to use manual renewals. Depending on which payment gateway you are using, you may also need to cancel the subscription at the payment gateway. For example, if you are using PayPal, you will also need to cancel the subscription at PayPal so that it does not process automatic payments. Change the subscription to manual renewals in your store before cancelling the subscription at the payment gateway. If you do not, it may be cancelled with your store.

Switch subscriptions

WooCommerce Subscriptions provides a switching feature that is normally used to offer upgrades and downgrades. However, it could also be used for the unusual usecase to provide a cross-grade (i.e. a switch from one subscription to another with the same billing terms). When a customer completes the switch process, they receive a new subscription with new billing terms. As a result, you can use this feature to have customers create new subscriptions that comply with the new VAT policies. To use switching for cross-grading a simple subscription:

Go to: Products > Add New
Create a new Simple Subscription product with identical billing terms to the existing subscription you want customers to switch from. Save the product.
Go to: Products > Add New
Create a new Grouped Product to contain both the existing subscription and new subscription products.
Go to: WooCommerce > Settings > Subscriptions
Configure the switch settings to enable switching for grouped products (you can enable it for variable products and setup proration if needed).

To use switching for cross-grading a variable subscription:

Go to: Products and find the variable subscription product to change
Create a new variation with identical billing terms to the existing subscription variation/s you want customers to switch from.
Go to: WooCommerce > Settings > Subscriptions
Configure the switch settings to enable switching for variable products (you can enable it for groups products and setup proration if needed).

Once you have created a new product and enabled switching, your customers can complete the cross-grade process. You can contact customers via email or some other method to request they complete the switch to ensure their subscription complies with new VAT laws.

Cancelling subscriptions

This is the most drastic option that should only be used if the previous options are not available. You can cancel subscriptions via the Subscriptions administration screen, as outlined in the Store Manager Guide. Once a subscription has been cancelled, the customer will need to sign-up for a new subscription following the normal purchase process. You may want to use synchronised renewals to provide the customer with a subscription aligned to their old billing schedule.