eBay Managed Payments and VAT threshold sales

[DerekGM6]

A post on here from a few years ago suggested that if I sell an item on eBay for £100 listing price, that counts towards VAT threshold-liable turnover.
However I only get about £80 of that and the customer is paying eBay directly. eBay is also more and more implying that the contract of sales is between the customer and eBay,
not me as the fulfiller of the goods. This is because eBay is intervening moire and more in the sale process and I as the supplier hardly get a say in what happens.
In my view it is the £80 that counts, as in effect I am supplying a service to eBay by advertising and delivering goods for which I get paid £80, and I should be billing eBay for the goods that they have in effect sold on.

What do members think?

 

[LPB 123]

£100 sale. The eBay fees are an expense.

 

[DerekGM6]

£100 sale. The eBay fees are an expense.

Well yes, but are they? If the customer was paying me directly as it was before the managed payments thing started then yes it would be cut and dried. But the customer isn't. They pay eBay, not me. So that direct link has been broken by eBay intervening and also imposing ever-increasing rules about how I supply the goods to what now amounts to eBay's customer. Their after-sale emails all imply that, with messages to the buyer saying "Thank you for buying from eBay" and "We've got your order" etc.

 

[NicoJ]

Well yes, but are they? If the customer was paying me directly as it was before the managed payments thing started then yes it would be cut and dried. But the customer isn't. They pay eBay, not me. So that direct link has been broken by eBay intervening and also imposing ever-increasing rules about how I supply the goods to what now amounts to eBay's customer. Their after-sale emails all imply that, with messages to the buyer saying "Thank you for buying from eBay" and "We've got your order" etc.

Its a valid point. The legal status of the sale will be in the minutiae of the contract. Usually it will hinge on certain criteria such as who the customer would take legal action against in the event of a dispute.

 

[ArabianNights]

I totally agree with you / I detest having to sell anything on eBay, not only because of the high fees, but the fact that they have too much control over everything. You not even allowed to see the customers email address. If you want to build customer loyalty, can’t do that on eBay. This and also the reasons you mentioned. We only sell high margin unique products on eBay - not worth it otherwise, especially branded items. But unfortunately due to it being recorded as you selling the item for £100, it would count towards the threshold and then claiming the £20 odd for expenses.

 

[Karimbo]

get out of the vat threshold glass ceiling limit mentality being yoiur max revenue. Embrace VAT registration, and work out ways to generate sales way past the VAT threshold. Not cap yourself to the VAT amount.

In retail/ecommerce, you cannot survive with £85K turnover. That will be like £20K profit if you're lucky.

 

[japancool]

Well yes, but are they? If the customer was paying me directly as it was before the managed payments thing started then yes it would be cut and dried. But the customer isn't. They pay eBay, not me. So that direct link has been broken by eBay intervening and also imposing ever-increasing rules about how I supply the goods to what now amounts to eBay's customer. Their after-sale emails all imply that, with messages to the buyer saying "Thank you for buying from eBay" and "We've got your order" etc.

If you register for VAT, the problem goes away.

 

[DerekGM6]

If you register for VAT, the problem goes away.

Unfortunately it doesn't. The problem is tax.
Friday; not registered. I sell an item for £100
Monday: registered. I have to add 20% VAT. The item price is now £120
Question: Do customers who can afford £100 on Friday, because that is all they have in their bank account, buy the item on Monday at £120? No.
Therefore the tax comes out of my £100
Ah you say, but you can claim inputs,. Quite so, but what if those inputs are virtually zero? This is the case with many one-man-band businesses. The reality is that VAT is a tax on the supplier, hence the name "value added" tax. There is only so much money in the economy at any given moment and if the government increased VAT to 30% tomorrow, do you think that extra tax will somehow fall from the sky? No, it comes out of that finite amount of money in circulation.
This is one reason why when the Conservatives increased VAT from 7.5% to 15% in the early 80s there was an immediate recession. They literally sucked money out of commerce.

My business is selling used car parts on eBay. My inputs are virtually zero. To leapfrog the VAT hurdle and get back to parity on my bottom line sales have to increase by a very large amount, which is difficult in a very competiitive market. I agree that £85k is almost impossible to live within, which is why VAT and tax in general is stifling the economy.

 

[DerekGM6]

There are 44,000 firms here that will NOT become the next Amazon, eBay, Tesla, Google, Apple or Microsoft.
Unfortunately I am not allowed to post links so you will have to Google this, it is from the Office for Budget Responsibility

The impact of the frozen VAT registration threshold​

 

[japancool]

Friday; not registered. I sell an item for £100

If you bought that item inc VAT then you reclaim it the VAT on it. Ergo, you do not need to sell it for £120 to make the same margin.

If going over £85,000 means you can't compete... then you'll have to stop selling once you hit £85,000.

That the 20% ebay is taking makes a difference, that would suggest you are already close to that threshold.

 

[japancool]

And if you

If you register for VAT, the problem goes away.

Ignore this. My fault, the talk of VAT made me confuse the ebay commission with VAT.

Are you selling to the UK or Europe?

 

[DerekGM6]

And if you


Ignore this. My fault, the talk of VAT made me confuse the ebay commission with VAT.

Are you selling to the UK or Europe?

Both the UK and Europe, and yes we are close to the threshold.

 

[japancool]

If selling to the UK, you can use the Vat margin scheme on second hand goods, where you only pay vat on the difference between what you bought it for and what you sell it for.

 

[DerekGM6]

If selling to the UK, you can use the Vat margin scheme on second hand goods, where you only pay vat on the difference between what you bought it for and what you sell it for.

Ok thank you, I will check that out.

 

[Karimbo]

Unfortunately it doesn't. The problem is tax.
Friday; not registered. I sell an item for £100
Monday: registered. I have to add 20% VAT. The item price is now £120
Question: Do customers who can afford £100 on Friday, because that is all they have in their bank account, buy the item on Monday at £120? No.
Therefore the tax comes out of my £100
Ah you say, but you can claim inputs,. Quite so, but what if those inputs are virtually zero? This is the case with many one-man-band businesses. The reality is that VAT is a tax on the supplier, hence the name "value added" tax. There is only so much money in the economy at any given moment and if the government increased VAT to 30% tomorrow, do you think that extra tax will somehow fall from the sky? No, it comes out of that finite amount of money in circulation.
This is one reason why when the Conservatives increased VAT from 7.5% to 15% in the early 80s there was an immediate recession. They literally sucked money out of commerce.

My business is selling used car parts on eBay. My inputs are virtually zero. To leapfrog the VAT hurdle and get back to parity on my bottom line sales have to increase by a very large amount, which is difficult in a very competiitive market. I agree that £85k is almost impossible to live within, which is why VAT and tax in general is stifling the economy.

retail flat rate scheme is 7.5% so you'd pay £7.50 VAT on that £100 sale if you dont increase your prices. If you do want to increase your prices upon VAT registration, you'd only need to increase to £108.50, not £120.

FRS rate is a rough approximation of what each sector pays on average in VAT after taking into consideration output vat - input VAT.

ofcourse there are winners and losers, some people pay more some pay less, if you would pay more than the FRS amount. then you need to use FRS for the arbitrage. If you pay less that the FRS you would do standard VAT.

But as I said in the previous post. You can't have a thriving business if you're selling physically goods with turnover of just 85K.

If you have several businesses all below 85K you need to know about disaggregation and ensure they are truly seperate entities for VAT from HMRC point of view.

 

[DerekGM6]

retail flat rate scheme is 7.5% so you'd pay £7.50 VAT on that £100 sale if you dont increase your prices. If you do want to increase your prices upon VAT registration, you'd only need to increase to £108.50, not £120.

FRS rate is a rough approximation of what each sector pays on average in VAT after taking into consideration output vat - input VAT.

ofcourse there are winners and losers, some people pay more some pay less, if you would pay more than the FRS amount. then you need to use FRS for the arbitrage. If you pay less that the FRS you would do standard VAT.

But as I said in the previous post. You can't have a thriving business if you're selling physically goods with turnover of just 85K.

If you have several businesses all below 85K you need to know about disaggregation and ensure they are truly seperate entities for VAT from HMRC point of view.

OK thank you for your advice. I will give it careful thought and let you know how things develop.

 

[AlanJ1]

Well yes, but are they?

Yes, and you won't win an argument on this one. £100 sale, £20 expense.

You not even allowed to see the customers email address.

Why the hell would any third party marketplace give you an email address? Amazon, Etsy, Onbuy and any third party dropship site I have ever been on you don't get an email. The customer is not yours, it is eBays.

But unfortunately due to it being recorded as you selling the item for £100, it would count towards the threshold and then claiming the £20 odd for expenses.

Nothing unfortunate about this. This is business. You sold the item for £100. It is the exact same if you sold the item in a retail store for £100 but cost of acquisition for that customer is £20.

 

[DerekGM6]

Yes, and you won't win an argument on this one. £100 sale, £20 expense.


Why the hell would any third party marketplace give you an email address? Amazon, Etsy, Onbuy and any third party dropship site I have ever been on you don't get an email. The customer is not yours, it is eBays.

Nothing unfortunate about this. This is business. You sold the item for £100. It is the exact same if you sold the item in a retail store for £100 but cost of acquisition for that customer is £20.

"The customer is not yours, it is eBays." That is exactly my point. eBay is in effect employing me to find products, photograph, describe and list them on their site, and give eBay a selling price. They then use their platform, search facilities and various promotional methods to find customers who will buy the items. They monitor the sales fulfillment process and apply penalties if it does not meet their criteria. In the event of disputes, the customers approach eBay in the first instance and eBay's decision is final. eBay tries to prevent external contact with the customer by withholding email addresses etc. In effect, I am providing a service to eBay and in return for that service I get paid about 80% of the selling price.

When I first started using eBay about twenty years ago it was much more clear cut. They provided an online auction platform, I listed things on it, the customer paid me directly and liaised with me directly if there were any problems or complaints. In exchange for this facility I paid a fee to eBay.

Over the years, cognisant of the perception that customers blamed eBay if transactions did not meet their expectations, eBay has taken over more and more of the sales process, with Managed Payments finally breaking the link between me and the customer, and eBay in their messages to buyers giving the impression that they are buying from eBay, not me. The invoices that I enclose with my deliveries are a fraud really and eBay even provide the template for them headed EBAY.

What I could do is simply put in a packing slip, and combine all the sales into one monthly invoice to eBay equalling the sum of their monthly managed payments to me for my service.

 

[AlanJ1]

"The customer is not yours, it is eBays." That is exactly my point. eBay is in effect employing me to find products, photograph, describe and list them on their site, and give eBay a selling price.

And eBay is giving you access to there hundreds of millions of customers, worldwide?

In effect, I am providing a service to eBay and in return for that service I get paid about 80% of the selling price.

I get what you are saying and understand your argument and logic, but you are never, ever, ever going to win on this.
You sell something for £100 and you expense the difference received.

Amazon do the EXACT same, they pass you on a remittance amount after fees etc. Same with Etsy. Same with any 3P marketplace worldwide. If this was something that could be challenged, it would of been by a much larger company.

What I could do is simply put in a packing slip, and combine all the sales into one monthly invoice to eBay equalling the sum of their monthly managed payments to me for my service.

And as soon as you get an inspection you will be royally screwed.

 

[DerekGM6]

Ok AlanJ1 you make good points and yes I guess you are correct. Thank you for your advice.

 

[Karimbo]

those are the VAT rules. If were to sell through your own site and the payment processor decided to deduct the amount and may you the sum after their fees. You'd pay the VAT on the sale price.

£18.00 item,
paypal gives me £17.18, keeps 82p for itself.

I have to declare VAT at £20.00 sale price.

The marketing and advertiisng costs, seo, adwords, social media manager is an expense. A lot of these are not vatable. Google adwords is reverse charged (0%), All my SEO live in asia so there's no VAT.

The ebay money they pay you subtract the payment processing and marketing fees. Just because they did all in one billing rather than paying you the full price and then sending you a seperate invoice and direct debit for their fees does not affect VAT treatment.

I can understand your frustration though. Most sellers on ebay are small indies, they are charging so little for their stuff- that if they were to charge VAT and kept the prices the same, they would be loss making. So VAT is a huge bump up in cost.

I would prefer if VAT threshold was rock bottom like £20K. So almost everyone is paying VAT, and <£20K is a good amount to dip your toes in business and not discouraging small traders to start.

That way it would elevate the prices on ebay to a realistic amount and there isn't an unfair competition on eBay where small traders are undercutting everyone massively.

A tip to try maybe if you're around £70K-£80K on ebay and you want to reduce your sales and keep it below the treshold. Increase your prices by 10%. It might reduce the sales and actually increase your profits.

 

[Bobbo]

All my SEO live in asia so there's no VAT.

Could be reverse charge on these too

 

[Karimbo]

Could be reverse charge on these too

They're individual freelancers so unlikely

 

[Bobbo]

They're individual freelancers so unlikely

Why do you think that makes any difference from your perspective as a UK business buying in services from outside of the UK?

 

[Karimbo]

Why do you think that makes any difference from your perspective as a UK business buying in services from outside of the UK?

Im supposed to voluntarily pay VAT services I buy from freelancers outside UK and Eu?

 

[Bobbo]

Im supposed to voluntarily pay VAT services I buy from freelancers outside UK and Eu?

Yes, other than those supplies which have their specific rules, services bought in from outside of the UK are subject to reverse charge (where the supply would be VATable) and as such you should be recording and Output VAT amount and, to the extent you can recover it, and Input VAT amount. If you're making only VATable supplies there should be no net cost. If you're partially exempt, then there will be a net cost as the fully input VAT won't be recoverable.

If you aren't doing this, do consider some VAT advice.

 

[Argentum Tax]

Im supposed to voluntarily pay VAT services I buy from freelancers outside UK and Eu?

There is nothing voluntary about it.

You have to reverse charge VAT where the supply would be taxable (as @Bobbo says). However you may well be able to recover that VAT as Input VAT, resulting in no actual charge. This is not voluntary though; the reverse charge must be done.

 

[DerekGM6]

Further to my opening and earlier post, I am looking at the margin scheme for paying VAT and it would appear that from the point of view of zero-rating exports (eg via eBay):

"If someone is selling the goods on your behalf​

You cannot usually zero rate an export if you sell the goods through an auctioneer or dealer who acts as an agent in their own name.

This is because the sale of the goods is treated as 2 separate supplies:

• from you to the agent
• from the agent to the purchaser

Your sale of the goods is a supply to the agent, rather than a supply to the final purchaser. It can only be treated as a zero-rated export if the agent is located outside the EU."

So, I quote: "Your sale of the goods is a supply to the agent"

So, I am supplying goods to the agent (ie eBay) and by extension this status does not change whether the purchaser is within the UK (VATable) or outside (zero rated).

It follows that when assessing sales turnover for the VAT threshold, sales made via eBay are sales to an agent and should be measured as such. In other words sales turnover to eBay = sum total of what they pay me.

 

[Karimbo]

There is nothing voluntary about it.

You have to reverse charge VAT where the supply would be taxable (as @Bobbo says). However you may well be able to recover that VAT as Input VAT, resulting in no actual charge. This is not voluntary though; the reverse charge must be done.

Ok

The supplier is not VAT registered and is based in Pakistan

They are probably grossing no more than $15K a year workoing out of pakistan.

They do work for me and send me a $100 bill.

I am supposed to reverse charge this? or no? What VAT number do I use to reverse charge?

 

[GLAbusiness]

Does anyone else find it confusing that we have 2 issues (Derek and Karimbo) being dealt with in the same thread

 

[DerekGM6]

Does anyone else find it confusing that we have 2 issues (Derek and Karimbo) being dealt with in the same thread

Unfortunately yes but this is how internet discussions tend to evolve. Perhaps @Karimbo could copy 'n paste his bits to another thread? Thanks!