Paypal fee - customers invoice & vat

Discussion in 'Ecommerce Forum' started by Tony Reynolds, Oct 17, 2018.

  1. Tony Reynolds

    Tony Reynolds UKBF Newcomer Free Member

    9 1
    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.
     
    Posted: Oct 17, 2018 By: Tony Reynolds Member since: Jul 22, 2016
    #1
  2. Mr D

    Mr D UKBF Legend Free Member

    17,745 2,030
    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.
     
    Posted: Oct 17, 2018 By: Mr D Member since: Feb 12, 2017
    #2
  3. Mike Hayes

    Mike Hayes UKBF Enthusiast Free Member

    1,058 277
    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)
     
    Posted: Oct 17, 2018 By: Mike Hayes Member since: Jan 7, 2016
    #3
  4. Tony Reynolds

    Tony Reynolds UKBF Newcomer Free Member

    9 1
    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?
     
    Posted: Oct 17, 2018 By: Tony Reynolds Member since: Jul 22, 2016
    #4
  5. Mr D

    Mr D UKBF Legend Free Member

    17,745 2,030
    I'd just fix it going forwards.
     
    Posted: Oct 17, 2018 By: Mr D Member since: Feb 12, 2017
    #5
  6. Pish_Pash

    Pish_Pash UKBF Ace Free Member

    2,418 624
    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!
     
    Posted: Oct 17, 2018 By: Pish_Pash Member since: Feb 1, 2013
    #6
  7. Mr D

    Mr D UKBF Legend Free Member

    17,745 2,030
    VAT adjustment is easy enough to make on the return.
     
    Posted: Oct 17, 2018 By: Mr D Member since: Feb 12, 2017
    #7
  8. Pish_Pash

    Pish_Pash UKBF Ace Free Member

    2,418 624
    Yes I know, but I thought the recommendation was to only worry about it going forward.
     
    Posted: Oct 17, 2018 By: Pish_Pash Member since: Feb 1, 2013
    #8
  9. Mr D

    Mr D UKBF Legend Free Member

    17,745 2,030
    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.
     
    Posted: Oct 17, 2018 By: Mr D Member since: Feb 12, 2017
    #9
  10. Nochexman

    Nochexman UKBF Enthusiast Free Member

    1,895 289
    £1,000 or thereabouts by my calculation.
     
    Posted: Oct 18, 2018 By: Nochexman Member since: Jun 14, 2011
    #10
  11. Abigail Collier

    Abigail Collier UKBF Newcomer Free Member

    3 0
    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.
     
    Posted: Mar 8, 2019 By: Abigail Collier Member since: Mar 8, 2019
    #11
  12. The Ecom Guy

    The Ecom Guy UKBF Contributor Full Member

    43 9
    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
     
    Posted: Mar 8, 2019 By: The Ecom Guy Member since: Mar 3, 2019
    #12
  13. Abigail Collier

    Abigail Collier UKBF Newcomer Free Member

    3 0
    I will, with a FOC training session on using Xero with PayPal.

    It is easier over a Skype call than a forum.
     
    Posted: Mar 8, 2019 By: Abigail Collier Member since: Mar 8, 2019
    #13