UK VAT on paypal fees?

[kipper]

I am in the UK. Am I being charged VAT on my paypal fees?

[Steveco]

From what has been said so far, it would seem that VAT is not charged to us on any transaction. Luxembourg TVA (VAT) is not charged to us. If this is the case then we should take it as a general taxable service which would come off of our normal income/corporation tax and not include it in our VAT return. That is what I am going to do. If it is wrong the tax man will soon tell us.

[dj-excession]

Further to this thread, we have had a VAT inspection (which went fine, thank you : ) and the main area they were looking at was our EU imports.  But they did state we were showing our paypal fees incorrectly - it was not an issue because there was no VAT element involved but whereas we had been treating them the same way as bank charges, we were told we should be using a different code - the following paragraph is taken from their post-visit letter

Reverse charges. These are payable at 20% on supplies of taxable services bought in from outside the UK. Like acquisitions, the equivalent input tax is deductible subject to the usual rules, but the output tax and input tax amounts are posted to boxes 1,3 and 4 only. Charges such as those from Amazon would have to be treated in this way – but not from Paypal as it is an exempt financial service.

Hope this helps!

[tcdaly]

To clarify the scenario in roseyannj's reply, would the 3.4% + 20p fee be applied to the inc. VAT or ex. VAT price of an item sold through Paypal?

I think it's been established that there's no VAT element in the transaction fee itself.

[PayPal_Rachael]

Hi tcdaly, 

Welcome to the community forum and thanks for posting. 

We don't apply VAT for you when you are receiving money through PayPal. It would be something you would need to factor into your prices when you are selling on your website. What that means though is that the fee would apply to the whole amount including the VAT since it is applied to the whole amount of the payment that you receive. 

I hope that makes sense. 

Rachael 

[XiangZeng]

Thank you so much for this information. I have literally searched the web for an hour for this piece of information. There were debates over whether Paypal is classed as a financial institution in which case the fees would be VAT exempt. It seems to me then HMRC classes it as a service so then the Reverse Charge Expense (20%) applies. We also had a VAT inspection and were also told some of our filings were in the wrong box for services outside of the EU.  This clarified the issue for me. Thanks