When doing bookkeeping, I am often asked if bank fees and card fees are subject to VAT. In my experience, different accountants and bookkeepers consider fees to either be Exempt of VAT or to not involve VAT at all ...
Bank fees and card fees are generally exempt of VAT, but like GoCardless, sometimes that's not true!
Exempt of VAT is assigned to 'T2' in Sage or 'Exempt Expenses' in Xero. If it is outside the scope of VAT then it is 'T9' in Sage and 'No VAT' in Xero. The difference with the two approaches is that with 'exempt', the net value appears in the total purchases box on the VAT return. With 'no VAT' there is nothing from the transaction reported on the VAT return.
In my own experiences with the VAT office, either approach seems acceptable as the numbers involved are usually very low. I advise my clients to pick the one which makes sense to them and just be consistent.
However, some of the other payment services may need researching, especially if the fee is seen to be as part of a financial service they provide, where the company is based, and where fees are due.
"A good example of this is GoCardless, used by many small businesses to collect Direct Debits!"
As of 1st September 2020, there was a change in the application of tax laws in France and the UK which meant GoCardless could no longer benefit from a VAT exemption which previously applied to the supply of payment services.
From that date forward their fees incur VAT. If you are a VAT registered business in the UK, it just means you can reclaim this VAT charge and it makes no difference to your bottom line. If you are not VAT registered, or you supply exempt products or services, then do take a look at their terms of service for further advice.
With the latest upgrade to Sage50c version 27.1.562.0 there is an additional setting required in Settings/Company Preferences/GoCardless and you need to set the tax code to use for fees before GoCardless integrates correctly.
Until next time ...
ALISON MEAD
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more, it may be a great idea to give me a call on 01604 217365 and let's see how I can help you.
Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.
You know what they say: if you want something done well ask a busy person!
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