Have you been contacted by HMRC about your VAT accounting?

Daniel Pienaar, Audit Manager and Head of Saffery’s Accounts and Outsourcing Division in High Wycombe, advises on why HM Revenue & Customs (HMRC) is contacting certain VAT registered businesses.

Saffery is aware of HMRC writing to businesses who use third-party payment processors with respect to VAT accounting. The key point is that where VAT is due, it’s accountable on the full value of the supply, and not on a value which is net of the payment processors’ fees. For example, where a supplier makes online sales totalling £6,000 inclusive of VAT at the standard rate, but receives £5,750 in cash via the payment processor which is net of their fees of £250, the VAT which the supplier needs to be accounted for on its supplies is £1,000 (1/6th of £6,000 based on a 20% VAT rate) and not £958.33 (1/6th of the cash amount received).

It would appear HMRC has grown concerned that suppliers using the services of third-party payment processors are not bringing the right of amount of VAT to account. The letters which HMRC is now sending out is urging businesses to check they’re accounting for VAT correctly and to correct any errors noted, in the appropriate manner.

It’s not clear what records HMRC is relying on when selecting which VAT registered businesses to write to concerning this matter.

It’s vital to seek advice from a VAT specialist if your business does receive a letter from HMRC regarding VAT accounting when payment processors are being used to facilitate payments by customers for orders placed. The use of such providers is prevalent in the e-commerce space, and the likes of Paypal and Stripe for example are commonly used by online sellers. Suppliers should ensure they have access to data which clearly indicates the gross value of supplies made, in order for the appropriate amount of VAT to be reported. Such data forms a vital element of the records a VAT registered business trading online, is required to keep.

For further details, please get in touch with Daniel Pienaar by emailing [email protected] or calling 01494 464666.

Saffery’s Accounts and Outsourcing Division in High Wycombe focuses solely on offering outsourcing related services to businesses including statutory accounts preparation, bookkeeping; VAT return review and preparation; management accounts preparation; payroll; registered office duties and Xero software training and support. The team is fully supported by a team of experts – from Audit and Assurance, Business Advisory, VAT and Corporate Finance advisers through to Tax and Trust experts from across the firm, should businesses require more specialised advice.