Online trading fees – is there a VAT problem?

Friday May 2014

An Article from Tips & Advice, May 2014

Two types of fee
There are usually two types of fee to pay when you sell through an online marketplace: a commission from the site owner, e.g. eBay, and a charge from the bank, card company etc., e.g. PayPal or Barclaycard. These are distinctly different charges and each has its own VAT treatment.

Finance charges
The fee charged for processing a customer payment, e.g. by PayPal, is VAT exempt. Therefore, you won’t be charged VAT by the payment processing company and so you don’t need to worry about reclaiming it.

Commission and other charges
Depending on which online marketplace you’re using there might be more than one charge for selling items online. For example, eBay charges an insertion fee simply for putting the item up for sale on its site, plus a commission when you make a sale. Both of these types of fee potentially have VAT added, but you might not be entitled to reclaim it.

The foreign factor
While the UK is a huge market for companies like eBay and Amazon, their businesses are based abroad (Luxembourg and Ireland respectively). This means they aren’t liable to account for UK VAT on the charges they make. Instead, the VAT they apply is that applicable to the countries in which they are located.

Tip 1.Where the marketplace company is based in the UK it will charge you VAT which you can reclaim in the normal way. If you aren’t sent a VAT invoice you can usually download one from your account page on the marketplace website.

Tip 2. If your business is VAT registered and the marketplace company is based elsewhere in the EU you can avoid being charged foreign VAT. To do this you must make sure your account with the company is set up to show that you’re VAT registered. This will mean entering your VAT number somewhere in the set-up pages. Each site is different so you’ll have to dig around.

• ❮ Previous
• Next ❯

Click here to see how easy it is to switch to Cowley Holmes