HMRC target Payment Processing costs treatment

If your business or, as an advisor, your clients’ business is involved in selling goods or services online then the latest series of "One to Many" letters that HMRC are sending out will be of interest. HMRC's concern springs from those businesses using a third party to deal with the payment side of the transaction which results in the supplier incurring a charge for that payment processing service.  The HMRC letters vary in style as to whether the target business is a Small, Medium sized or a Large Businesses who may be incurring such costs.

HMRC have a concern as to whether such businesses are actually recording the Gross Sales Value of the items or services they sell, as opposed to treating as their income the value they receive AFTER the deduction of such payment processing fees. This would resulted in understated income being recorded.

This is a VAT area for concern if the items being sold are subject to VAT and an error for Direct Tax purposes as it would reduce the profit margin.

The Association of Taxation Technicians (ATT) have shared a link to these letters which you can find here. There are three styles of letters depending on the size of the business concerned but the core message is the same: to ensure that businesses record sales income values for VAT and Tax purposes correctly as the Gross Sales value not the Net.

There are other related VAT aspects for businesses that sell goods and services and use a payment processing provider to assist in this regard – for example, is the charge made subject to the UK VAT Reverse Charge if coming from an organisation outside the UK?

HMRC have an interest in businesses using such services and it's important to be alert to the risk of potential enquiries from HMRC to those affected.  

If this is an area that does get complicated for you or for your clients from the VAT perspective then do get in touch at IndirectTax@Xeinadin.com

This note is for information purposes only and advice sought always be sought if problems arise.