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Do I pay VAT on Card Transaction fees?

For all EU jurisdictions, excluding Ireland, the VAT tax treatment for the Stripe (our card processing partner) payment processing fees is Reverse Charge

Non-VAT registered Merchants: The transaction fees contribute to the rolling annual VAT threshold (e.g. 2015/16 Tax Year threshold for registering for VAT is £82,000). These fees should be monitored along with sales income to establish whether or not to register for VAT, and this registration remains the responsibility of the Merchant.

VAT registered Merchants: Instead of being charged VAT by Stripe, the User credits his VAT account with the necessary amount of output tax as if he had supplied the services himself and at the same time debits his account with the amount of input tax to which he is entitled under the normal rules. The practical effect of this is that there will be no net tax payable on the transaction fee except by businesses which are not entitled to full deduction of input tax, such as those which are partly exempt.

In the Accounts download from SmartTrade, the transaction fees for all Users are assigned as Reverse Charge for VAT purposes, so that they can be included automatically for VAT returns in accounting systems, where applicable, and can be edited by the User in the . CSV file or the accounts package, for any exceptions.

For Users in Ireland, the local VAT rate will apply to the Transaction Fee.

WHY IS THERE A DIFFERENCE BETWEEN THE CONSUMABLE AND THE TRANSACTION FEE I WOULD PAY IF I DID NOT PASS ON THE FEE?

Stripe charges a Transaction Fee on all payments processed through credit and debit cards. When a Merchant charges a Consumable on the Invoice Amount for passing on the Transaction Fee to the Customer the payment processed is increased by that Consumable amount. In order to therefore allow 100% pass-through of fees an incremental charge (c. 0.07% of Invoice Amount for standard fees of 2.65% + 20p) is made to account for the payment processing cost of the Consumable amount.

For non-VAT registered Merchants, there is no VAT on the Consumable.

e.g. For Labour of £1,000, Consumable is £27.43 and Stripe Fee is £27.43 (equal to 2.65% x £1027.43 + 20p). The fees cancel leaving £1,000 net income to the User.

For VAT registered Users, there is VAT applied to the Consumable, and this is included in the Invoice .CSV file downloaded from SmartTrade app to be uploaded into your accounting system. There is therefore two options for charging the Consumable to your customer:

1) Apply the Consumable that would pay for the Stripe fee so that both fees cancel exactly. This, however, leaves a VAT liability on the VAT return on the Consumable.

e.g. For Labour + VAT of £1,200, Consumable is £32.87 and Stripe Fee is £32.87 (equal to 2.65% x £1232.87 + 20p). The fees cancel leaving £1,200 gross income to the User with an additional VAT liability of £5.48 on the VAT return for the Consumable.

2) Apply a grossed up Consumable that pays for the Stripe fee and for the VAT liability on the Consumable.

e.g. For Labour + VAT of £1,200, Consumable is £39.66 and Stripe Fee is £33.05 (equal to 2.65% x £1239.66 + 20p). The Consumable pays for the Stripe fee and the VAT liability of £6.61 on the VAT return for the Consumable leaving £1,000 net income to the User.

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