Paypal fee - customers invoice & vat

[Tony Reynolds]

Evening,

If we sell something for £100.00, customer pays by paypal, our fee from Paypal is £2.00 (e.g)

So we create the invoice in our accounting software (xero) - How do we handle the paypal fee of £2.00?
Do we send the customer an invoice showing:
1 x Product @ £100.00
1 x Paypal Fee @ -£2.00
?

So should we be creating the invoice for £100.00 with £16.66 of vat?
Or should be creating an invoice for £98.00 with £16.33 of vat and show a separate line for a £2.00 paypal fee which is vat exempt?

Just I understand the paypal fee's are vat exempt - so I would rather be paying the VAT on the £98.00 that we actually get, rather than the £100.00 as VAT registered business.

Also, the paypal fee, can we account that as a bank fee, or should we account for it under a different name?

Any help would be appreciated.

 

[Mr D]

You ask your customer to pay a hundred pounds. They do not need to know what your costs are. They do not need to know what portion of that is salary, is insurance, is for toilet rolls.
Your PayPal fees are a cost of your business. Simply show them in your accounts.

Your buyer is paying the vat and is paying it on the hundred pounds, you are merely collecting it. Do not try and fiddle the government out of 30 odd pence vat on a transaction which is the vat you are not being charged.

Just think, when you buy something from someone else you do not get a breakdown of the card processing cost as a separate line item on your bill. You pay vat on the total and do not worry about what element of the sellers costs are exempt from vat.



And I do mine as PayPal - under bank charges. Same as I do other card processing fees under whatever company name they have.

 

[arnydnxluk]

The PayPal fee would not usually be mentioned on your invoice to a customer. The fee is your own expense charged by your supplier for handling your payment processing, the customer has nothing to do with this and it's the same as any other overheads you would incur.

You could use a single 'bank fee' category or what I prefer to do is separate your banking fees from your PayPal fees by creating a new account for PayPal transaction fees.

Invoice - £100.00

Money into PayPal bank account - £100.00 (recorded as sales in your sales account)
Money deducted from PayPal account - £2.00 (recorded as expense in PayPal transactions account)
Balance remaining in PayPal account - £98.00 (retained profit from the sale if no other transactions)

 

[Tony Reynolds]

Good men. Answered my question
We have been doing it wrong, on around 200k worth of invoices - reckon we have to go over and change the invoices to not include the paypal fee or just to fix it going forwards?

 

[Mr D]

I'd just fix it going forwards.

 

[Pish_Pash]

I'd just fix it going forwards.

The bloke from HMRC will surely disagree...he's lost out on a lot of money if VAT has only been applied to the selling price net of Paypal fees!

 

[Mr D]

The bloke from HMRC will surely disagree...he's lost out on a lot of money if VAT has only been applied to the selling price net of Paypal fees!

VAT adjustment is easy enough to make on the return.

 

[Pish_Pash]

Yes I know, but I thought the recommendation was to only worry about it going forward.

 

[Mr D]

Yes I know, but I thought the recommendation was to only worry about it going forward.

Changing the invoices will take probably a bit more time than amending VAT return next quarter will.
If you think that amending all previous invoices resolves the issue better then great.

 

[Nochexman]

The bloke from HMRC will surely disagree...he's lost out on a lot of money if VAT has only been applied to the selling price net of Paypal fees!

£1,000 or thereabouts by my calculation.

 

[Abigail Collier]

This is really easy to sort and account for in Xero.

Let me know if you would like me to help you with this - I have been a Xero bookkeeper with e-commerce businesses for over 7 years.

 

[The Ecom Guy]

If it is easy, could you not just tell him?

I personally cannot add more than what Mike said in the 2nd reply. That is exactly how i believe it should be done

 

[Abigail Collier]

If it is easy, could you not just tell him?

I personally cannot add more than what Mike said in the 2nd reply. That is exactly how i believe it should be done

I will, with a FOC training session on using Xero with PayPal.

It is easier over a Skype call than a forum.