UK Calculating VAT Margin Scheme and iZettle Fees

[Jpeterson85]

Hello, we are using the VAT margin scheme on our sales of products (memorabilia and art) that fall into the scheme (pay 16.67% on the difference between the purchase and sale price of the item) and looking for advice on how this should be calculated, also taking into consideration the amount received in the bank is lesser the card terminal fees.

We are using Xero for managing our accounts and bookkeeping. From a little research online we have found Xero to be complicated for these calculations.

However, there is a workaround which requires more work but I would like to hear others thoughts on this before we proceed.

For example, a product which qualifies for the VAT margin scheme sells for £260.00 (£260.00 charged on our iZettle card machine)

The amount actually received in the bank is £255.45 because iZettle takes their fee of 1.75% of every transaction and this is taken before the funds reach our bank account. Our bank account shows £255.45 received. No record of the £4.55 iZettle fee as it is charged before we even see the money from this sale.

Based on this sale example above, we have calculated this as follows:

Purchase price of item - £20.00

Sale price of item - £255.45

VAT (using VAT Margin Scheme) should be paid on 16.67% of 235.45 (sale price minus purchase price of item).

VAT payable = £33.64



However, my concern is that the amount on the invoice to the customer is £260.00 but the amount received in the bank account is £255.45.

Do we pay VAT on the amount which is received in the bank account, or the total sale price (money received + izettle fees)?

It doesn’t make sense that we should be liable to pay VAT on the £4.55 iZettle fees when that money never actually comes into our accounts.

Please note, the invoices for customers will not show standard VAT amount breakdown as we are using VAT margin scheme so I am also unsure how this should be shown to customers.

To clarify my questions are as follows:

Should we pay VAT on only the amount received in the bank account? – based on the example above, the amount liable for VAT would be £235.45.


Should we make a note at the bottom of our invoices to say that we are using VAT margin scheme, therefore standard vat is not applied?
Would we show ZERO vat on the invoices or should it show 16.67%? This is more complicated as you calculate this by working out the margin of sale price minus purchase price – customer should never be able to see our original purchase price of the item sold.


If a customer asks for a VAT receipt, how should this be processed?


Thanks for your help and I look forward to the advice anyone can offer on this.

 

[Werner Reisacher]

The problem you are wrestling with is more of a vendor problem than a VAT issue. Get in touch with the Salesman who sold you the iZettle software app and the system and let him walk you through their fee structure and the way they collect their fees. iZettle is actually a PayPal service - very convenient if you operate in certain market niches, but not exactly the most cost-effective solution in general. Make sure that you are not "double-dipping" with credit card transaction fees inside the iZettle app, on top of the bank's credit card fee.

 

[lewish95]

The VAT fraction allows you to calculate the amount of VAT included in a given sum of money. A standard rate of VAT of 20% gives a 'VAT fraction' of 1/6. When you have worked out your gross margin, multiply the figure by 1, then divide by 6.

The iZettle app is FREE to download. You'll be charged a fixed transaction fee of 1.75%, regardless of which card you process with your iZettle Reader. Accept payments from customers who are not physically present. The only cost is the transaction fee for every paid link 2,5%.

 

[Werner Reisacher]

The question is actually not related to whether you are using the VAT margin scheme or not, the question is - how much money did you charge the customer for the sale and how much money did the customer pay to you. This is the amount on which VAT is due. The fact that these funds did not flow directly into your bank account, but were partially reduced by a "fee" from iZettle is a cash flow issue that you agreed to by entering the contractual agreement with them. You are actually not paying VAT on the fee, you are paying VAT on the sales price of the goods - Pounds 260.00
If you want to dig further into this issue, you will find information on the official UK VAT site. Insurance charges that you add to the selling price on the invoice for services that are provided by a third party that you pass on directly to that service provider would not be included in your "sales price" for the VAT calculation.
Attached is an interesting article that explains the reason why the VAT margin scheme was developed to handle issues between non registered VAT dealers.

https://www.chadsan.com/media/filer_public/99/da/99dadff7-8289-405c-932e-7dca5ebadb3f/vat_margin_scheme.pdf

 

[cemem]

Hello, we are using the VAT margin scheme on our sales of products (memorabilia and art) that fall into the scheme (pay 16.67% on the difference between the purchase and sale price of the item) and looking for advice on how this should be calculated, also taking into consideration the amount received in the bank is lesser the card terminal fees.

We are using Xero for managing our accounts and bookkeeping. From a little research online we have found Xero to be complicated for these calculations.

However, there is a workaround which requires more work but I would like to hear others thoughts on this before we proceed.

For example, a product which qualifies for the VAT margin scheme sells for £260.00 (£260.00 charged on our iZettle card machine)

The amount actually received in the bank is £255.45 because iZettle takes their fee of 1.75% of every transaction and this is taken before the funds reach our bank account. Our bank account shows £255.45 received. No record of the £4.55 iZettle fee as it is charged before we even see the money from this sale.

Based on this sale example above, we have calculated this as follows:

Purchase price of item - £20.00

Sale price of item - £255.45

VAT (using VAT Margin Scheme) should be paid on 16.67% of 235.45 (sale price minus purchase price of item).

VAT payable = £33.64



However, my concern is that the amount on the invoice to the customer is £260.00 but the amount received in the bank account is £255.45.

Do we pay VAT on the amount which is received in the bank account, or the total sale price (money received + izettle fees)?

It doesn’t make sense that we should be liable to pay VAT on the £4.55 iZettle fees when that money never actually comes into our accounts.

Please note, the invoices for customers will not show standard VAT amount breakdown as we are using VAT margin scheme so I am also unsure how this should be shown to customers.

To clarify my questions are as follows:

Should we pay VAT on only the amount received in the bank account? – based on the example above, the amount liable for VAT would be £235.45.


Should we make a note at the bottom of our invoices to say that we are using VAT margin scheme, therefore standard vat is not applied?
Would we show ZERO vat on the invoices or should it show 16.67%? This is more complicated as you calculate this by working out the margin of sale price minus purchase price – customer should never be able to see our original purchase price of the item sold.


If a customer asks for a VAT receipt, how should this be processed?


Thanks for your help and I look forward to the advice anyone can offer on this.

Hello!

How is the VAT calculated? By that I mean - I am not US citizien, I am from Europe.

I am not willing to be invoiced on my company - I simply do not have to. Law in my country allows me not to be. So I am getting paid as a private person.

I was sure VAT is not going to be paid at all (nor in my country nor in USA). But it turns out, it is going to be paid in USA.
By that I mean - I was sure I would get 80 x 0,8 = 64$. However it is ~61$.

Correct me if I am wrong. However if VAT is paid in USA, what is the VAT rate?