Accounting for VAT regarding Paypal and Shopify fees.

[DoubleE91]

Hi all, I recently registered for VAT.
I'm wondering how to account for transaction fees?
If I've charged somebody £12 cash I'd put £10 income on my tax return and £2 on my VAT return.
But I just realised I only actually get £11.40 or so into my account for online sales, depending if payment is via paypal or card and their location.
Do I allocate the VAT as a percentage after subtracting the fee? So even though the customer paid £2 VAT and £10 for product, I report £1.90 VAT and £9.50 profit? Or would I report £2 VAT still and £9.40 profit?

 

[Mr D]

You aren't paying the VAT, the buyer is. If they paid £12 then £2 of that is the VAT you record.
Your expenses are taken from your income which is excluding VAT paid by buyer.
Your paypal / shopify fees, your insurance, your postage, your wages, your stock purchase are all expenses taken from your income, not from the government's income.

 

[DoubleE91]

Makes sense - thank you! I guess it hasn't been intuitive to me to look at it that logically because I'm not 'actually' charging my customers VAT. I.e their total price is still the same as before I registered, so I keep thinking of it as being my money.

 

[DontAsk]

If your expenses include VAT (do PayPal fees?) then you need to account for that as input VAT.

 

[TheCyclingProgrammer]

If your expenses include VAT (do PayPal fees?) then you need to account for that as input VAT.

Unless something has changed recently, PayPal and Stripe fees should be subject to the reverse charge, so they should have no VAT on them and OP will account for UK VAT on the fees on their VAT return.

Stripe are based in Ireland and confirm here that they do not charge Irish VAT to non-Irish businesses:
https://support.stripe.com/questions/vat-on-stripes-fees

I *think* PayPal are also based in Ireland so the situation should be the same, unless they are now charging fees from a UK-based subsidiary in which case they would have UK VAT charged on them.

 

[TheCyclingProgrammer]

OP: if you've charged £10 + VAT for a product, then you will report a net sale of £10 and VAT of £2 on your VAT return.

If you actually receive £11.40 because PayPal have deducted 60p in fees, then you would deal with that separately.

As per my post above, if the PayPal entity that charges you the fee is based outside the UK then there should be no foreign VAT on the fees and you would account for UK VAT on the 60p under the reverse charge. This would mean treating the 60p as if you'd both supplied and received it - you would add 60p as both a net sale and purchase to your VAT return and 12p in UK VAT as both input and output VAT. See 5.2 here:

https://www.gov.uk/government/publi...-notice-741a-place-of-supply-of-services#sec5

If on the other hand, PayPal are charging you fees from a UK VAT registered entity (you should be able to confirm this by looking at the invoice PayPal gives you for your fees - does it show a UK VAT number?) then you would treat the 60p as inclusive of UK VAT (net cost 50p, input VAT 10p). In this case I would expect PayPal to provide a valid UK VAT invoice for their fees as you need this to reclaim the VAT on the fees.

 

[TheAccountancySolutions]

Here is a simple formula to work out VAT from VAT inclusive prices. if £12.00 includes VAT then £12 multiply by 20 divided by 120. That will give you VAT and it's £2.00. Why this formula because no matter the VAT Rate changes it will still be true every time. Gross Price * VAt Rate / 100+ VAt Rate gives you VAT. When you are working out VAT on eBay or online sales, its advisable to download your sales in excel and analyze it by sales categories. You may not have charged VAT on some items like children clothing etc so these need to be separated from other items. Ebay, Paypal, and Amazon all charge fees inclusive of VAT but you will see VAT separately mentioned on your monthly statement of fees and charges.

 

[Mr D]

£12 multiply by 20 divided by 120. That will give you VAT and it's £2.00. Why this formula because no matter the VAT Rate changes it will still be true every time.

So rate of 17.5% gives....?
Rate of 5% gives....?

Nope, seems that multiply by 20 and divide by 120 gives the same answer.

 

[TheAccountancySolutions]

VAT if the rate is 17.5% - 17.5 x 12/117.5 = 1.78 so the net amount is 10.22
VAT if the rate is 5.00% - 5.00 x 12/105.00 = 0.57 so the net amount is 11.42

 

[TheCyclingProgrammer]

£12 multiply by 20 divided by 120. That will give you VAT and it's £2.00. Why this formula because no matter the VAT Rate changes it will still be true every time.

Maybe it's because I'm a programmer and prefer to optimise formulae, but why do two steps when one is sufficient? Using standard rate VAT:

To get gross from net = multiply by 1.2
To get net from gross = divide by 1.2

If reduced rate VAT, use 1.05 instead of 1.2.

That said, it seems OP knows how to calculate the net, but wasn't sure how to factor the fees into the VAT calculation (as I said, the answer is to deal with them separately from the gross sale).

 

[TheCyclingProgrammer]

Ebay, Paypal, and Amazon all charge fees inclusive of VAT but you will see VAT separately mentioned on your monthly statement of fees and charges.

As I mentioned before, do not assume that these fees include any VAT. If they are invoicing you for fees from outside the UK and they are correctly treating it as a B2B transaction then there should be no VAT (reverse charge applies).

 

[Mr D]

VAT if the rate is 17.5% - 17.5 x 12/117.5 = 1.78 so the net amount is 10.22
VAT if the rate is 5.00% - 5.00 x 12/105.00 = 0.57 so the net amount is 11.42

Yes if you change the 20 to other figures.

 

[DontAsk]

Here is a simple formula to work out VAT from VAT inclusive prices. if £12.00 includes VAT then £12 multiply by 20 divided by 120.

Or just multiply by 2 and divide by 12 until the VAT rate changes.

Or just divide by 6 until the VAT rate changes.

Why complicate things unnecessarily?

And you are offering "Accountancy solutions"? I think your solution is part of the problem.

 

[TheCyclingProgrammer]

Or just multiply by 2 and divide by 12 until the VAT rate changes.

Or just divide by 6 until the VAT rate changes.

Why complicate things unnecessarily?

Divide by 6 to get the VAT element, divide by 1.2 to get the net price. Simple.

 

[DontAsk]

Divide by 6 to get the VAT element,

Isn't that what I just said, and you quoted?

Why repeat things unnecessarily?

 

[TheAccountancySolutions]

Or just multiply by 2 and divide by 12 until the VAT rate changes.

Or just divide by 6 until the VAT rate changes.

Why complicate things unnecessarily?

And you are offering "Accountancy solutions"? I think your solution is part of the problem.

Haha, As an accountant, i am duty bound to tell the whole story not half and see what happens when the rate changes. Come on you won't find such a proactive person........do you.

 

[TheCyclingProgrammer]

Isn't that what I just said, and you quoted?

Why repeat things unnecessarily?

I was clarifying that you divide by 6 to just get the VAT, rather than the net which is what we had been discussing.

I’d already posted the easiest way to convert gross to net several posts before yours so I’m not sure I’m the one complicating matters here!

 

[DontAsk]

I was clarifying that you divide by 6 to just get the VAT, rather than the net which is what we had been discussing.

Erm, no clarification needed. If you look at what I quoted "to work out VAT from VAT inclusive prices", not net, not gross, just the VAT.