PayPal Foreign Currency

[YoungL]

Hello,

I am employed and pay income tax via PAYE for my job.
Last year I opened up a website and didnt expect to earn money from it. However in the end I was earning a good wage from this website.

I am young (19) and have never had any experience really with paying tax or filing self assesment so its all rather "scarey" from my point of view.
Because my website is intended for those from the USA primarily money made from my website for services where paid in to my PayPal account in USDollars. I only converted the USDollar balance to GBPounds when I wanted to withdraw to my bank account. So sometimes the currency would be in Dollars in my PayPal account for a few months at a time.
My questions are as follows:

1) Do you pay income tax on the money which entered your PayPal account as and when it entered (IE. do I have to work out the conversion rate when the money went in) or do I base it on the conversion rate when I withdrew the money and converted in to GBP balance.

2) Do I count the GROSS as being before or after PayPal deduct their fee. I ask because I do not actually ever see the entire amount as PayPal deduct their fee before I ever see the money.

3) How do I "prove" my income, do I need to print out PayPal logs? or will bank statements do?
Thanks in Advance for your advice/tips.

Regards,

Leon

[koicarpentry]

I'm no expert but presumably this is what you should do.

Register as self employed, (within 3 months of starting your buisness, otherwise you will encur a penalty from HMRC).

Save a percentage of your income from this buisness to pay your tax bill. How much depends on what tax rate you should paying.

I would count your income as the net amount (after deduction) you recieve from Pay Pall.

An accountant could advise on what your accounts should show. regarding pay pal charges etc.

[mikeleeds]

I'm no expert but presumably this is what you should do.

Register as self employed, (within 3 months of starting your buisness, otherwise you will encur a penalty from HMRC).

Or they might not - I registered over 12 months late and they didnt seem to mind... Not saying delay it, do it ASAP but saying you might not get fined if youre lucky.

I would count your income as the net amount (after deduction) you recieve from Pay Pall.

An accountant could advise on what your accounts should show. regarding pay pal charges etc.
Agreed, deduct all PayPal fees.

And the accounts bit if youre not earning very much (Not VAT registered) you only need to be able to show accounts, so keep bank statements and print off PayPal history logs (And import to a spreadsheet of some kind to sum) in case they ask you. Thats a good thing about paypal - the download history is very extensive.

I would also Guess that its the amount in GBP you got for your dollars after excxhange too

Edit: I'm also no expert

[betterlanguages]

I run a translation agency (http://www.betterlanguages.com) and we use PayPal a lot, both to make international payments to translators, and occasionally to receive payment from clients. We are VAT registered, which makes things slightly more complicated, but I think the general principles are pretty clear for anyone generating an income:

1) Two certainties in life are death and taxes, if you earn anything over a nominal income it will need to be declared and tax paid.
2) An accountant is an absolute must for anything but a very small level of income.
3) The level of potential penalty for getting it wrong isn't worth thinking about. Remember the Revenue can estimate any income they like and tax accordingly if you have no records....
4) Tax doesn't need to be a big problem as long as you allow for it and keep proper records.
5) If you are making and/or receiving payment in different currencies keep a note of the actual exchange rates, PayPal make a bit on the exchange and you need to be able to justify this.
6) Receiving payments, the PayPal fee is a legitimate expense.

Hope this helps.

Cheers

Mike

[Pab]

Like Mike at betterlanguages, we also use Paypal (and the similar Moneybookers) very often in GBP, EUR and USD. We just list Paypal as another bank account (in Sage) so accounting for everything is a breeze... and VAT doesn't complicate things.

But I would advise using an accountant, or consulting one at the very least!

Paul :)

[betterlanguages]

Like Mike at betterlanguages, we also use Paypal (and the similar Moneybookers) very often in GBP, EUR and USD. We just list Paypal as another bank account (in Sage) so accounting for everything is a breeze... and VAT doesn't complicate things.

But I would advise using an accountant, or consulting one at the very least!

Paul :)

Hi Paul

Can't get my head around Sage, at the moment we only use it for calculating VAT, and the accountant does the rest. I wish it was a "breeze"!

Cheers

Mike
translation into any language (http://www.betterlanguages.com)

[Pab]

It's NOW a breeze, I should say. I disliked Sage when we first started using it, but after getting used to the interface (and with a little guidance from our accountants) it's now pretty straightforward.

That said, it's not without complications. Our version only supports one currency, which makes accounting for foreign transactions a pain (we're in the same line of business as you so you'll know that it's a common task). We have to enter them retrospectively. We're looking to upgrade to a version that allows multiple currencies... it should make things a lot easier.

(Apologies for the slight digression YoungL)

Paul