Can this VAT be reclaimed?
Discussion
Are any accountants able to clear this up, I did message my accountant but hes away so got a half arsed reply from his assistant.
We sell products on eBay, when sold eBay pay us but deduct their fees which are VAT included, so we get the net amount.
E.g:
Sold for £1000
£800 enters our bank account after their cut.
We pay 20% VAT on the sale price of £800. This is all reported and filed on Xero.
That leaves £200 unaccounted for, as we sell a lot on eBay (about £10-15k per month) this adds up.
The £200 commission has VAT included in it. Can this be reclaimed separately? They are saying it cant as VAT has been paid on the sale but I am looking at it as more of an expense/service cost? In order for us to sell it for £800 we had to pay eBay £200incl VAT.
What do you all think?
We sell products on eBay, when sold eBay pay us but deduct their fees which are VAT included, so we get the net amount.
E.g:
Sold for £1000
£800 enters our bank account after their cut.
We pay 20% VAT on the sale price of £800. This is all reported and filed on Xero.
That leaves £200 unaccounted for, as we sell a lot on eBay (about £10-15k per month) this adds up.
The £200 commission has VAT included in it. Can this be reclaimed separately? They are saying it cant as VAT has been paid on the sale but I am looking at it as more of an expense/service cost? In order for us to sell it for £800 we had to pay eBay £200incl VAT.
What do you all think?
You sell for £1,000, including VAT. £166.67 VAT payable to HMRC.
Ebay charges you £200, including VAT. £166.67 fees charged to P&L, £33.33 VAT reclaimable from HMRC. You need a VAT invoice from Ebay.
Net effect:
Revenue £833.33
Cost £166.67
Payable to HMRC £133.34
This is the same end result as what you said, but your accounting is wrong.
I am (was) an accountant.
Ebay charges you £200, including VAT. £166.67 fees charged to P&L, £33.33 VAT reclaimable from HMRC. You need a VAT invoice from Ebay.
Net effect:
Revenue £833.33
Cost £166.67
Payable to HMRC £133.34
This is the same end result as what you said, but your accounting is wrong.
I am (was) an accountant.
Thanks guys, thats what I thought.
Here is our latest invoice:
https://ibb.co/FbTjsdpX
This has been going on years and we have similar bills for each month going back.
The commission never touches our bank so has never been picked up on or filed, just the net sale price.
So based on the above we could file that and claim back the £377 in VAT on the fees?
Here is our latest invoice:
https://ibb.co/FbTjsdpX
This has been going on years and we have similar bills for each month going back.
The commission never touches our bank so has never been picked up on or filed, just the net sale price.
So based on the above we could file that and claim back the £377 in VAT on the fees?
JCKST1 said:
Thanks guys, thats what I thought.
Here is our latest invoice:
https://ibb.co/FbTjsdpX
This has been going on years and we have similar bills for each month going back.
The commission never touches our bank so has never been picked up on or filed, just the net sale price.
So based on the above we could file that and claim back the £377 in VAT on the fees?
Yes, but you have to pay a correspondingly higher output VAT on your gross sale price. You can'y pay VAT on the net of revenue minus fees and then claim back the VAT on the fees again.Here is our latest invoice:
https://ibb.co/FbTjsdpX
This has been going on years and we have similar bills for each month going back.
The commission never touches our bank so has never been picked up on or filed, just the net sale price.
So based on the above we could file that and claim back the £377 in VAT on the fees?
Doofus said:
Yes, but you have to pay a correspondingly higher output VAT on your gross sale price. You can'y pay VAT on the net of revenue minus fees and then claim back the VAT on the fees again.
Ah right okay, we the only way of doing that would be to manually add each order to Xero at the gross price rather than it automatically reconciling the net.I presume if we do this it would be beneficial for the business than the way it is set up now?
JCKST1 said:
Doofus said:
Yes, but you have to pay a correspondingly higher output VAT on your gross sale price. You can'y pay VAT on the net of revenue minus fees and then claim back the VAT on the fees again.
Ah right okay, we the only way of doing that would be to manually add each order to Xero at the gross price rather than it automatically reconciling the net.I presume if we do this it would be beneficial for the business than the way it is set up now?
The net effect is zero, but HMRC will still have you for it if they do an inspection.
ETA: Plus, you're misstating your revenue and your cost of sales, so you don't have a true view of your business. If you moved from Ebay to another platform, you'd be unable to compare the performace of each.
Accounting rules (which VAT, Income Tax and Corporation Tax follow) state that in MOST cases, sales and costs should be declared IN FULL. In other words, the figures stated in your accounts should never be netted off against each other.
This example shows how it should work
Ignoring VAT for the moment -
You bill your customer £1,000 - you show £1,000 sales in your accounts
Your "agent" (in this event, E-Bay) charges you £150 for processing the sale.
You still show the sale as £1,000 but you show the £150 as a cost in the profit and loss account
If VAT is involved, the sale invoice shows £1,000 plus £200 VAT,
The Sale is still £1,000, the £200 is a liability owed to the VAT man.
E-Bay charges you £150 plus VAT i.e. £230.
However, the E-Bay cost is still only £150, The £30 VAT is VAT reclaimable against the £150 owed to the VAT man.
One thing I would caution is, be aware that some of these on-line type services might be based abroad - for example in Luxembourg or the Republic of Ireland. If Luxembourg or Irish VAT is charged, you CANNOT reclaim this against your UK VAT liability. As a result, foreign VAT has to be added to the original purchase cost as a genuine expense.
This example shows how it should work
Ignoring VAT for the moment -
You bill your customer £1,000 - you show £1,000 sales in your accounts
Your "agent" (in this event, E-Bay) charges you £150 for processing the sale.
You still show the sale as £1,000 but you show the £150 as a cost in the profit and loss account
If VAT is involved, the sale invoice shows £1,000 plus £200 VAT,
The Sale is still £1,000, the £200 is a liability owed to the VAT man.
E-Bay charges you £150 plus VAT i.e. £230.
However, the E-Bay cost is still only £150, The £30 VAT is VAT reclaimable against the £150 owed to the VAT man.
One thing I would caution is, be aware that some of these on-line type services might be based abroad - for example in Luxembourg or the Republic of Ireland. If Luxembourg or Irish VAT is charged, you CANNOT reclaim this against your UK VAT liability. As a result, foreign VAT has to be added to the original purchase cost as a genuine expense.
I’m not on a machine to check but as these two have said you’re effectively selling g to eBay for £833.33 exc VAT.
In Xero to keep your side tidy(ier) can’t you create an invoice to eBay for 833.33 exc tax against ‘sales’ and put a second line of negative (166.66) exc tax against ‘agent fees’ ? [It might want a -1 quant. multiplied by positive 166.66]
The net amount due should then be correct and you’ll have debited the expense along the way.
Also always note Eric’s wise notes, especially his last para!
In Xero to keep your side tidy(ier) can’t you create an invoice to eBay for 833.33 exc tax against ‘sales’ and put a second line of negative (166.66) exc tax against ‘agent fees’ ? [It might want a -1 quant. multiplied by positive 166.66]
The net amount due should then be correct and you’ll have debited the expense along the way.
Also always note Eric’s wise notes, especially his last para!
Dg504 said:
I m not on a machine to check but as these two have said you re effectively selling g to eBay for £833.33 exc VAT.
In Xero to keep your side tidy(ier) can t you create an invoice to eBay for 833.33 exc tax against sales and put a second line of negative (166.66) exc tax against agent fees ? [It might want a -1 quant. multiplied by positive 166.66]
The net amount due should then be correct and you ll have debited the expense along the way.
Also always note Eric s wise notes, especially his last para!
No, he's selling to the end customer for £833.33 + VAT. Ebay is charging him £166.66 + VATflr using their platform. Three parties are involved, not two.In Xero to keep your side tidy(ier) can t you create an invoice to eBay for 833.33 exc tax against sales and put a second line of negative (166.66) exc tax against agent fees ? [It might want a -1 quant. multiplied by positive 166.66]
The net amount due should then be correct and you ll have debited the expense along the way.
Also always note Eric s wise notes, especially his last para!
I’m a qualified accountant but not really an accountant anymore. Some of these responses are a bit painful.
Just don’t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
Just don’t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
dave123456 said:
I m a qualified accountant but not really an accountant anymore. Some of these responses are a bit painful.
Just don t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
If you want to run your business understating both your revenue and your cost of sales, then do this.Just don t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
Otherwise, do it properly.
Doofus said:
dave123456 said:
I m a qualified accountant but not really an accountant anymore. Some of these responses are a bit painful.
Just don t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
If you want to run your business understating both your revenue and your cost of sales, then do this.Just don t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
Otherwise, do it properly.
dave123456 said:
Doofus said:
dave123456 said:
I m a qualified accountant but not really an accountant anymore. Some of these responses are a bit painful.
Just don t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
If you want to run your business understating both your revenue and your cost of sales, then do this.Just don t claim the input vat on the fees, the net effect to the business is minimal.
And in all honesty just do the admin in the easiest way possible.. all HMRC care about is their revenue, not how you arrive at the correct answer.
Otherwise, do it properly.
I know how to do accouting. I also know how to run a business, what needs to be focussed on, what needs to be done properly, and where creativity can be let loose.
Doofus said:
I trained as an accountant. Since then, I started three businesses, and sold them all. After retiring at 45, and getting bored, I subsequently worked as a consultant to OMBs and SMEs for ten years before giving it up again two years ago.
I know how to do accouting. I also know how to run a business, what needs to be focussed on, what needs to be done properly, and where creativity can be let loose.
But you didn’t actually answer my question…I know how to do accouting. I also know how to run a business, what needs to be focussed on, what needs to be done properly, and where creativity can be let loose.
v8notbrave said:
Dave, it's not about business, it's compliance, which is clear and the bedrock of accounting. Guidance given is very clear and helpful. We all know the maths net out but help OP with proper compliant info 
I know that but in this specific situation it makes no difference anywhere.I’d actually argue the netting down helps decision making, as businesses of this sophistication only look at revenue, rarely will they directly attach costs to every individual SKU they sell, so grossing up eBay sales would hide a cost that is specific to that particular sales channel. It’s just my opinion.
dave123456 said:
What information is provided by your way that would help change a business decision? You re an accountant, not a business person.
Performance metrics if comparing to another similar business. Anything that assesses turnover as a measure (which is being understated) Investors, competitors, HMRC
You might look over buying a competitor mistakenly thinking they make less money.
HMRC computers look for sector anomalies
Also who are they selling product too, some customers may require a VAT invoice which shows £1,000 included VAT, if I bought your product & didn’t get that from a supposedly VAT registered company id be suspicious you were pocketing the VAT & report it (especially if it was online) as I couldn’t then reclaim input on my end
AndyAudi said:
Performance metrics if comparing to another similar business. Anything that assesses turnover as a measure (which is being understated)
Investors, competitors, HMRC
You might look over buying a competitor mistakenly thinking they make less money.
HMRC computers look for sector anomalies
Also who are they selling product too, some customers may require a VAT invoice which shows £1,000 included VAT, if I bought your product & didn t get that from a supposedly VAT registered company id be suspicious you were pocketing the VAT & report it (especially if it was online) as I couldn t then reclaim input on my end
But as I said the lack of sophistication this business exhibits suggests that netting down income that relies on fees/commission/royalties would benefit their decision making. As they are unlikely to genuinely analyse profitability by SKU or even customer. Investors, competitors, HMRC
You might look over buying a competitor mistakenly thinking they make less money.
HMRC computers look for sector anomalies
Also who are they selling product too, some customers may require a VAT invoice which shows £1,000 included VAT, if I bought your product & didn t get that from a supposedly VAT registered company id be suspicious you were pocketing the VAT & report it (especially if it was online) as I couldn t then reclaim input on my end
They will look at the lump that is COS and just assume it’s evenly spread. If I was running a relatively small business and one sales channel exclusively requires costs I’d actually consider some form of gross / net sales lines anyway.
Horses for courses, you guys can do it the right way per your view but I can see benefits to leaving as is personally.
One of the old mantras about book-keeping and accounting is "if you can't be correct, at least be consistent".
Many people who are successful at business are not that great at the recording and compliance aspects of it. If they are smart, they hire others who are good at that side of things.
Knowing the bottom line (profit or loss) is an essential part of knowing how your business is performing. But it's only one metric that needs to be measured. If you are not recording your transactions using the expected accounting rules and standards - or using techniques that are not compliant/legal - you may still have a successful business, but you are denying yourself some usefl analytical, performance and comparative measurement tools. Not to mention that you could fall foul of the authorities.
Many people who are successful at business are not that great at the recording and compliance aspects of it. If they are smart, they hire others who are good at that side of things.
Knowing the bottom line (profit or loss) is an essential part of knowing how your business is performing. But it's only one metric that needs to be measured. If you are not recording your transactions using the expected accounting rules and standards - or using techniques that are not compliant/legal - you may still have a successful business, but you are denying yourself some usefl analytical, performance and comparative measurement tools. Not to mention that you could fall foul of the authorities.
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