Dealing with PayPal Fees and Exchange Rates?

TaxQuestions_2

Good evening.

I'm self-employed and get paid in USD into my PayPal account.

I then withdraw that money into my UK bank account, with PayPal handling the exchange from USD into GBP.

PayPal exchange rates are always a little lower than the 'real' exchange rate.

Plus they take a fee on each payment I receive .

I'm wondering if there is any way I can 'write off' these 'expenses' from my accounts?

I can't see a way to export the PayPal fees I've paid so not sure how to log them as an expense? I use Freshbooks accounting software.

Not really sure how to deal with the low exchange rate either

In Freshbooks it'll record I was paid $1000 from a client which might be £800 at the real exchange rate, but PayPal only gives me £750, for example.

Over the year that difference can add up making my earnings look more than they are.

Any tips on recording payments via PayPal and taking their exchange rate into account?

Thanks for your time.

TheCyclingProgrammer

If you charged a client $1000 then you record it in your books as a sale in GBP at whatever the rate was when you raised the invoice.

You then get paid $1000 less PayPal's fee and converted back into GBP. Do PayPal convert to GBP first and then deduct their fee? If so, record whatever you received as payment in full and separately record the PayPal fees and any difference due to the exchange rate as a currency gain/loss.

For example:

$1000 invoiced, exchange rate 0.82 to $1, shown in your books as a sale of £820.

PayPal converts this using an exchange rate of 0.81, and deducts £20 in fees, giving you £790.

The £30 difference is explained as £20 in PayPal fees and £10 in currency losses, both of which are tax deductible costs.

Does FreshBooks support multi currency invoicing? If so it might already be able to handle much of this for you.

Currency issue aside, it's important you show your sale and the PayPal fees separately, don't net off the fees or you will be under reporting your turnover which could be important for things like the VAT registration threshold.

TaxQuestions_2

Thanks for the reply!

PayPal collects their fee each time I receive a payment. It's a percentage of the amount I am being sent. Then when I withdraw the money, they convert it from USD to GBP using their less favourable (for me) exchange rate.

I use Freshbooks as my accounting software/tool so I'm not writing anything down as it comes in, although I do have a spreadsheet.

So if I invoice $1000 via Freshbooks, it goes down in my Freshbooks account that I received $1000. There's no option for me to update the invoice and record the PayPal fees as far as I know. I have asked their support and they said they'd think about adding it as a feature.

Although it is possible to go back and edit a paid invoice and add a new line and enter the amount as a negative -$10 etc. But I'm not sure how legal that is - editing invoices that have already been paid?

When I send an invoice through Freshbooks for $1000, it goes on my records in Freshbooks that I received $1000. If I run the Profit and Loss report in Freshbooks and set the currency as GBP, it uses the average conversion rate for the period of the report. But I was getting a worse (for me) exchange rate.

I'm trying to find out if I can run a report in PayPal that will show me all the fees I've paid.

If that's possible, could I then log the fees I pay each month as an expense in Freshbooks, which would be offset against my earnings?

I probably have to cut my loses on the iffy exchange rate.

Any advice much appreciated! Thanks.

TheCyclingProgrammer

The fees don't go on your invoice, they go on your books as an expense.

Don't you need to reconcile your bank statements in FreshBooks and explain a payment as a payment towards an invoice? This is where you'd account for the difference due to fees and currency exchange losses in the software I use (FreeAgent).

TaxQuestions_2

Thanks, I will try and find a way to extract the PayPal fees I've paid this year from PayPal!

Do you record each fee you pay to PayPal as an expense?

I've no idea about the bank accounts? My accountant has asked for bank statements for the past year. Do they need to check that they all match up?

Freshbooks doesn't connect to Natwest. Maybe I should switch to FreeAgent - would you recommend it?

Thanks again.

Pennywise

TaxQuestions wrote: »

My accountant has asked for bank statements for the past year. Do they need to check that they all match up?

Yes your book-keeping must reflect and balance against your bank statements.

TaxQuestions_2

Thanks. Sometimes I leave money in PayPal for a while before withdrawing it to my bank!

Hope this isn't going to be a problem when trying to match things up.

TheCyclingProgrammer

TaxQuestions wrote: »

Thanks. Sometimes I leave money in PayPal for a while before withdrawing it to my bank!

Hope this isn't going to be a problem when trying to match things up.

Does it get converted to GBP in your PayPal account or only when you withdraw it?

If it sits in your PayPal account in GBP then I would consider adding your PayPal account to freshbooks as a bank account and reconciling it there (so you can match up PayPal deposits to your sale invoices and account for fees and currency losses and gains).

Then when you transfer to your business bank account you'd just show it as a bank transfer.

I've no experience with FreshBooks but yes I would recommend FreeAgent.

TaxQuestions_2

It stays as USD until withdrawn.

Don't think I can connect Freshbooks with PayPal.

Am tempted to switch to free agent now a new year is starting. Although would be worried about losing all my data unless I keep paying the monthly fees.

Thanks!

Pennywise

TaxQuestions wrote: »

It stays as USD until withdrawn.

Don't think I can connect Freshbooks with PayPal.

Am tempted to switch to free agent now a new year is starting. Although would be worried about losing all my data unless I keep paying the monthly fees.

Thanks!

Why not ask your accountant - it's quite possible that you can do what's needed via Freshbooks - sounds like you just need some proper advice how to do the book-keeping which your accountant is best placed to give you.