Selling online credits for services

[bogomip]

Hi all,

I'm UK resident and will have a website selling a service all provided via the website.

The idea is that people from anywhere in the world may be a part of a group. Some members might pay a few pounds to buy credits for the group, and when the group has a certain amount they get the pro benefits. This way a group can have several contributors paying small amounts so the group gets the 'pro' features which they all benefit from. Nothing physical is offered, and I'd probably like to use something like Stripe to take money.

My questions are:

- do I have to offer refunds? This could be a very timely and costly feature... I think from what I have read I don't so long as I do certainty things like provide clear explanations that refunds aren't possible.
- do I have to pay VAT, or if I am a sole trader just tax as a part of my own income?
- off the top of anybody's head, what other financial considerations are there I would need to be aware of?

Thanks!

 

[Paul Kelly ICHYB]

- do I have to offer refunds? This could be a very timely and costly feature... I think from what I have read I don't so long as I do certainty things like provide clear explanations that refunds aren't possible.

Yes. If you do not provide the goods/services offered, you are in breach of contract! Also, what happens if group members do not pay enough to get Pro level?

- do I have to pay VAT, or if I am a sole trader just tax as a part of my own income?

If your turnover goes over £90k a year, yes, or you can register voluntarily.

- off the top of anybody's head, what other financial considerations are there I would need to be aware of?

You have not told us exactly what your product/service is, so difficult to give more help, but do you know you start and operating costs?

 

[fisicx]

I'm UK resident and will have a website selling a service all provided via the website.

What service?

What happens if nobody but me contributes? Can I get my money back as the pro option will never happen?

 

[bogomip]

Hi Paul,

Thanks for the reply. Basically multiple members contribute towards the goal and they all get expanded capabilities. It's really a mass notification service, so the users sign up to get event notifications so they don't have to be watching one particular thing to know something is happening. Consider you wanted to be part of a flash mob, you sign up to a flash mob group, say you want email and push notifications, then when the leaders decide to flash mob they do a notification that it's happening in 1 hour in Trafalgar square. It means they don't have to be watching the forum and have multiple ways of getting the notifications.

The goods would be credits which would be automatically be delivered upon payment. They are bought for the group so it does depend a little upon trust that the owners will use them. I am aware this part of the software might need refinement depending upon use. I want to avoid members being abused into paying but make it so nobody has to pay a lot for the service.

Edit: if the threshold for the group is met then the services are automatically enabled, so there is no chance of them jus being stashed. This isn't really a service for anonymous groups but rather premade groups who game together, do stuff in life together etc.

 

[Paul Kelly ICHYB]

Sorry, outside of a message sending service (of which there are many that are free), I still do not know what you are doing.

 

[fisicx]

It means they don't have to be watching the forum and have multiple ways of getting the notifications.

Does this means it's an extension of the forum? Or is it pulling event data from multiple sources?

It seems very confusing considering the multiple ways you can already send notifications.

For example, you could just have a whatsapp group to update members. Much simpler. and free.

 

[bogomip]

Simple to use WhatsApp yes, but not anonymous for groups who play games together for example, also might include people like me who dont want WhatsApp notifications (and can't work it out) but do want to know something else. This keeps people anonymous, allowed multiple modes of notification, and customisable notifications.

Anyway, more looking for financial advise than whether it would work as a business or not. They targeted people don't currently have a system in place which works for them (a community of which I am a member).

 

[fisicx]

In which case, ask the community. If they are willing to pay for the service then it’s all good.

You won’t have to pay VAT for a long time but you will need a business bank account.

It won’t be anonymous, you will know who has paid or not. Which may give you an advantage in the game. And if it becomes popular you will need help making it even less anonymous.

 

[bogomip]

It will be anonymous between players, and true I will be able to see when things are happening but I don't care enough to do anything about that I'm not a hardcore member! Market research I have done suggests it's something missing and would be valuable to the more committed members so I think, given the large base of people who use it, not a bad business case.

Thanks for the financial help, I did look at starting a business with it so will investigate more.

 

[fisicx]

You can just be a sole trader but you need to keep the members money separate. Hence the business bank account. Getting one might be difficult though as your idea is a bit of a lottery and bank get twitchy about these.

 

[bogomip]

They just buy the credits and have say, 500 credits. I'm not storing their money, they buy them off me which then pay towards the service.

The credit idea is so that multiple members can contribute to the same goal.

 

[fisicx]

Doing this means you may need to register with the gambling commission.

I get the idea but not sure it’s viable. Have you asked your gaming community if they like the idea and are willing to pay?

 

[bogomip]

I'm interested where the gambling element comes in, you basically pay for xyz services and that's what you get. I guess what I could do to get around the 'it might not happen', as maybe that's what you mean, is sell credits which automatically set the pro features on, so no minimum threshold but say, 10 credits gets 10 hours or something and always adds to the total hours the group has for pro features

 

[fisicx]

That could work. But only if you ask your community. If they aren’t willing to pay then there is little point in building the website.

And you will still need a separate bank account. However you structure things it’s still a business.

 

[FriendsInvest]

Hi all,

I'm UK resident and will have a website selling a service all provided via the website.

The idea is that people from anywhere in the world may be a part of a group. Some members might pay a few pounds to buy credits for the group, and when the group has a certain amount they get the pro benefits. This way a group can have several contributors paying small amounts so the group gets the 'pro' features which they all benefit from. Nothing physical is offered, and I'd probably like to use something like Stripe to take money.

My questions are:

- do I have to offer refunds? This could be a very timely and costly feature... I think from what I have read I don't so long as I do certainty things like provide clear explanations that refunds aren't possible.
- do I have to pay VAT, or if I am a sole trader just tax as a part of my own income?
- off the top of anybody's head, what other financial considerations are there I would need to be aware of?

Thanks!

For digital services, UK law (Consumer Contracts Regulations 2013) doesn’t require you to offer refunds if:

• The service is provided immediately after payment, or
• The customer is informed that refunds are not available before purchasing.

However, if a service is faulty or isn’t as described, consumers may still have grounds for a refund. To protect yourself, include clear terms of service on your website, stating that credits or contributions are non-refundable and explaining how contributions work.

If your total taxable turnover (income from UK and overseas customers) exceeds the VAT threshold, currently £90,000 per year, you’ll need to register for VAT. This applies regardless of whether you're a sole trader or limited company. For services delivered digitally, you may also need to look at the VAT rules for digital services provided to EU consumers, as these may require VAT to be charged based on the consumer’s location.

 

[Paul Kelly ICHYB]

currently £85,000 per year,

Its £90k

 

[FriendsInvest]

Its £90k

Apologies - 90K!

 

[bogomip]

Thanks so much, much appreciated! Yes, I am thinking that delivering immediatele and not having a 'pool' so to speak will be a better way to manage this. I see the lottery angle and think this would be avoided if the credits are instantly applied (so you can buy 4 days of pro applied immediatele as opposed to 4 days applied only when the groupd has, say, 28 days banked!).

Thanks all for the help

 

[eteb3]

if these credits can be used elsewhere you might need to check whether they are credit tokens under the Consumer Credit act, or a means of payment under the Payment Services Regulations. But like others I’m also not clear what you do.

@fisicx afaik there’s no legal requirement to keep customer money separate in this case: the liability to the customer is contractual not as a trustee, because the customer has received full value for their money (=they now have some credits)

Ofc it’s always better to keep business funds segregated but that’s about financial discipline