Self Employed/Ltd Co Tax Advice

Taxmanz

Hi all,

I'm self-employed through my Ltd company. I have an accountant but have a few questions maybe you can help me with!

I get paid by my clients through PayPal (who charge a % fee) but am unsure of the best way to record these fees as an expense.

Should I deduct it at the end of the year or each month? How should I best record it?

Any tips much appreciated!

Thanks.

HappyMJ

Taxmanz wrote: »

Hi all,

I'm self-employed through my Ltd company. I have an accountant but have a few questions maybe you can help me with!

I get paid by my clients through PayPal (who charge a % fee) but am unsure of the best way to record these fees as an expense.

Should I deduct it at the end of the year or each month? How should I best record it?

Any tips much appreciated!

Thanks.

Enter the expense as soon as it's incurred.

If you're on monthly billing from Paypal then enter the expense monthly. Make sure you're on the best Paypal rate. If you receive more than £1,500 every month you can go on Merchant Rate pricing.

booksurr

depends whether you use a bookkeeping package to keep your records on?

the "best" way in my opinion is:
1. download the monthly "financial summary" from paypal.
2 set up 2 bank accounts in your lodger: a) "Paypal" and b) "real" bank current a/c
3. post the sales total figure per 1 as: DR paypal, CR sales
4. post the fees total figure as per 1 as: DR Expense CR Paypal
5: Post any cash withdrawals from paypal (drill down on the transfers figure to open the transaction list) as a bank transfer on the date they left the paypal account : Dr current a/c Cr paypal. That way the balance on the "paypal" account in your ledger will always reconcile with the ending balance on the monthly report.

Or, if you post on the date it arrives in the current account (3 working days later), your current account will reconcile but you will have a small timing difference on the paypal account.

if none of the above makes sense then get a bookkeeper!

Taxmanz

Thanks, the expenses are incurred each time a client pays an invoice, this can happen approx. 5-10x a month.

So I should I record the dollar amount in my accouting software each time a fee is charged by PayPal?

I recieve over £1,500 per month via PayPal.

Taxmanz

booksurr wrote: »

depends whether you use a bookkeeping package to keep your records on?

the "best" way in my opinion is:
1. download the monthly "financial summary" from paypal.
2 set up 2 bank accounts in your lodger: a) "Paypal" and b) "real" bank current a/c
3. post the sales total figure per 1 as: DR paypal, CR sales
4. post the fees total figure as per 1 as: DR Expense CR Paypal
5: Post any cash withdrawals from paypal (drill down on the transfers figure to open the transaction list) as a bank transfer on the date they left the paypal account : Dr current a/c Cr paypal. That way the balance on the "paypal" account in your ledger will always reconcile with the ending balance on the monthly report.

Or, if you post on the date it arrives in the current account (3 working days later), your current account will reconcile but you will have a small timing difference on the paypal account.

if none of the above makes sense then get a bookkeeper!

I use Freshbooks to record my expenses.

Thanks for the info, I wasn't aware PayPal let you run reports.

From running the "Monthly financial summary" report, I can see that last month I paid $228 in pament fees.

Can I just record that in my accouint software (Freshbooks) as an expense for the month? On average that would be about £1900 per year, so worth recording.

When I withdraw from PayPal into my bank account, it happens within a few minutes.

Thanks for your help!

tiger_eyes

I just log everything I receive net of Paypal fees. Client pays $X, Paypal gives me £Y, I withdraw £Y and calculate tax due accordingly.

booksurr

Taxmanz wrote: »

Thanks, the expenses are incurred each time a client pays an invoice, this can happen approx. 5-10x a month.

So I should I record the dollar amount in my accouting software each time a fee is charged by PayPal?

I recieve over £1,500 per month via PayPal.

that your sales are in foreign currency is a fact you should have mentioned! Do you invoice in USD or GBP? What currency is your paypal account reported in by paypal?

you have 2 allowed options:
1. record every transaction individually using the actual exchange rate applied to each transaction by paypal - "the transactional method"
or
2. apply the official HMRC month end exchange rate to the monthly summary figures of sales and fees: " the average method". Any transfers from paypal to UK current a/c would be at actual per the UK bank statement. You may then need to recognise an exchange rate gain or loss as an "expense"
https://www.gov.uk/government/collections/exchange-rates-for-customs-and-vat

booksurr

tiger_eyes wrote: »

I just log everything I receive net of Paypal fees. Client pays $X, Paypal gives me £Y, I withdraw £Y and calculate tax due accordingly.

from a technical accounting perspective that is fundamentally wrong as you are netting off an expense against an income, and thus understating the actual gross income value. For example, by so doing, you are under reporting your turnover figure for VAT registration purposes