Paypal fees and VAT

[Wayne2011]

Hi,

Up until now I have always tried to take some of the impact from the extortionate processing fees charged by Paypal. I have now decided that if a customer wants to pay by paypal then I will charge a flat rate of 4% to cover the charges. Hopefully this will turn people away from Paypal and encourage them to use one of the other methods we offer.

Anyway, my main reason for posting is if I invoice this as.....

Item 1...
Item 2...
Item 3.....
Postage.....
Processing fees 4%

How would I account for this? What is the situation with Paypal fees and VAT? What about the 4%, is VAT chargable/payable on the 4% as it is charged to cover the fees that Paypal take and as far as I know the isnt usually any VAT involved with paypal charges?

Thank you

 

[johndon68]

There is no VAT at all on PayPal fees.

John

 

[ERP_Consultant_Dalbir]

Hi Wayne

In your case there is VAT element chargable to your company's customer because your company (I presume is vat registered) are supplying the service to the customer, not Paypal.

It's like if i posted a letter and went to Royal Mail, no VAT charge to me.

If your company posted my letter via RoyalMail and invoiced me the cost of a stamp, your company still has to charge me VAT ontop of the price of a stamp.

Dalbir

 

[Wayne2011]

Hi,

Thanks for the extremely fast replies!

So what you are saying is if I dont charge the customer the paypal/processing fees then I would just charge VAT on the sales/postage as usual and Paypal then take 3.4%+20p of the total. So Paypal effectively charge us and profit from the VAT charged to the customer and we then have to pay 20% VAT of the total to the tax man.

If we charge 4% for processing through Paypal then we would have to charge it to the customer as.....

Item 1... + VAT
Item 2... + VAT
Item 3..... + VAT
Postage..... + VAT
Processing fees 4% of the total + VAT

 

[andygambles]

Hi,

Thanks for the extremely fast replies!

So what you are saying is if I dont charge the customer the paypal/processing fees then I would just charge VAT on the sales/postage as usual and Paypal then take 3.4%+20p of the total. So Paypal effectively charge us and profit from the VAT charged to the customer and we then have to pay 20% VAT of the total to the tax man.

If we charge 4% for processing through Paypal then we would have to charge it to the customer as.....

Item 1... + VAT
Item 2... + VAT
Item 3..... + VAT
Postage..... + VAT
Processing fees 4% of the total + VAT

You have to add VAT to any fees you add.

Alternatively encourage more customers to pay via PayPal and then the fees go down.

£0.00 GBP - £1,500.00 GBP 3.4% + £0.20 GBP
£1,500.01 GBP - £6,000.00 GBP 2.9% + £0.20 GBP
£6,000.01 GBP - £15,000.00 GBP 2.4% + £0.20 GBP
£15,000.01 GBP - £55,000.00 GBP 1.9% + £0.20 GBP
above £55,000.00 GBP* 1.4% + £0.20 GBP

https://www.paypal.com/uk/cgi-bin/webscr?cmd=_fees-rate-about

 

[talkinpeace]

I take it you are only doing this on your website as of course Paypal surcharges are not allowed on ebay.

Before ramping up the fees for paypal users, it would be worth your while checking EXACTLY how much your other card processors charge.
Paypal is very transparent because you receive the money net.
When people actually LOOK at their Streamline bills they are often shocked how much they are being charged for how little.
Amex used to be dearer than Paypal...

 

[Wayne2011]

Hi,

Thanks for the replies.

Yes it is on a website, and also customers that come direct and ask for a Paypal invoice (usually overseas customer)

I am fully aware of how much the processing charges are with our other payment provider and it is much lower than Paypal. To process a debit card is pence regardless of how much the transaction is.

In an ideal world we wouldnt accept Paypal as the charges are extortionate and the customer service is next to useless, but we still offer it as an option as we see that some customers like to use Paypal and dont like to use anything else.

With regards to encouraging more customers to use Paypal so the fees go down I can see what you are saying, but the fact remains the customer service is still useless.

 

[andygambles]

Hi,

Thanks for the replies.

Yes it is on a website, and also customers that come direct and ask for a Paypal invoice (usually overseas customer)

I am fully aware of how much the processing charges are with our other payment provider and it is much lower than Paypal. To process a debit card is pence regardless of how much the transaction is.

In an ideal world we wouldnt accept Paypal as the charges are extortionate and the customer service is next to useless, but we still offer it as an option as we see that some customers like to use Paypal and dont like to use anything else.

With regards to encouraging more customers to use Paypal so the fees go down I can see what you are saying, but the fact remains the customer service is still useless.

Not really. I have always got someone on the phone if I needed them.

 

[Wayne2011]

I agree with that. After going through the slightly annoying menu system I have always got someone on the phone. As for being someone with even a small bit of intelligence that can resolve an issue is something completely different.

 

[andygambles]

I agree with that. After going through the slightly annoying menu system I have always got someone on the phone. As for being someone with even a small bit of intelligence that can resolve an issue is something completely different.

Not my experience after 8 years of using PayPal. Always got someone who answered the phone and was able to resolve my query. Which is more than can be said of some other merchant providers I have used.

 

[Parrot Hosting]

I don't understand people knocking PayPal. When I ran two retail stores and an online ecommerce store I built my prices on the basis of COG * % of profit required. I worked out that to cover the VAT, CC charges, stocking costs and overheads I needed to charge something like 133% (I cannot remember the actual) which I then rounded up or down according to the nearest 99p

Within that figure I allowed for the average transaction costs over a period of 3 months per transaction - I never had to worry about 3.4% or 2.75% or 25p or even payment by cash (which itself had a banking charge of 50p er £100) it just didn;t matter.

Either you are selling to little and without enough margin or you are getting caught up in the little things.. build it into your price and then forget it.

 

[Virtually9-5]

I took off paypal of my store and did ssl etc and found not as many sales. I put it back on and the sales increased.

its a choice but at the end of the day to process credit cards are similar %s so no gain really.