Have you accounted for the eBay Fees VAT change?
It’s worth a quick reminder that from the 1st of August eBay are now applying VAT to their fees which business sellers will pay for the first time.
The first people to see the change will be those billed in the middle of the month, other sellers will see the change when they receive their invoices at the end of August.
Your next eBay invoice will be 20% higher than normal but if you are VAT registered then you will be able to reclaim the VAT on your next quarterly VAT return, which for some may be in as little as a month but for others it could be three months time depending on when your quarterly VAT return is due. However moving forwards it may cause a slight cash flow issue as the VAT will be paid to eBay monthly and reclaimed from your VAT quarterly so be sure to update your cash forecasts.
Those sellers who are unable to reclaim VAT either because they’re not VAT registered or if they are on a VAT scheme where they are unable to reclaim VAT will see a cost increase in real terms. You will need to examine your margins but typically for sellers in categories where fees are 10% the increase is equivalent to paying 12% in the future (although you’ll have the dubious comfort of knowing that the additional 2% goes towards running the country).
How will the fees impact your cashflow?
It’s important to remember that the VAT is paid on your eBay fees not your turnover, so whilst 20% VAT might sound scary in reality it’s relatively small amounts.
£1 Million eBay turnover seller
If your annual sales on eBay are a million quid then at 10% fees you’ll be paying £100,000 a year to eBay. The VAT on fees will be 20% or £20,000 annually which works out to £5,000 a quarter or £1,666 per month.
I wouldn’t expect too many cash flow issues for a business of this size – If you have a million pound turnover and your cash flow is too tight to pay £1,666 VAT monthly, until you knock the £5,000 off your VAT return at the end of the quarter, then your business probably has more serious issues which need addressing.
£85,000 eBay turnover seller
If you turn over £85,000 or more than you should be VAT registered and able to reclaim the VAT on your quarterly VAT returns. In this instance your fees will be around £8,500 per year, your VAT on eBay fees would be £1,700 per year or £425 per quarter.
Hopefully less than £141 per month won’t impact your cash flow too severely until you reclaim the £425 at the end of the quarter.
Less than £85,000 eBay turnover seller
Let’s take a Gold PowerSeller turning over £6,000 per month or £72,000 per year. Your eBay fees will be £7,200 per year and the VAT on your eBay fees will be £1,420 annually or £118 to pay on each eBay invoice. Sadly if you’re not VAT registered then you won’t be able to claim this back. If your turnover is lower then so will be the VAT you pay on fees.
As you can’t reclaim the VAT you may wish to consider adjusting your selling prices to take account of the additional 2% expense.
eBay sellers on special VAT schemes
If you are on a special VAT scheme such as the Flat Rate VAT scheme then your turnover could be as high as £230,000 (including VAT). Potentially you could be paying eBay as much as £19,000 per year in VAT or more than £1,500 per month which you can’t claim back.
If you are on a special VAT scheme and all or the majority of your business is transacted on eBay then you may wish to consider leaving the scheme and reverting to the regular VAT scheme.
For flat-rate VAT sellers… before this change the invoice would be for Ebay (Luxembourg), now it is for Ebay (UK). So before, VAT registered business sellers would’ve been liable to pay UK VAT to HMRC on the Ebay (Luxembourg) Ebay fees.. but now it is Ebay (UK) who collect the VAT in their fees. Surely this means there should be no difference?
It is important to note, I have no accounting experience, so there is a strong chance I am completely wrong.
Up until the end of July, eBay had a dispensation not to charge VAT to UK registered business sellers. That dispensation ends so now all sellers pay VAT on their invoices and only those that can claim it back on a VAT return end up with no change.
If you can’t claim the VAT back because you’re not VAT registered or because you’re on a special VAT scheme then you’re out of pocket by the 20% VAT added to your eBay fees.
There are about 2.5 million business on the flat rate scheme who will see a 20% hike in their fees with no way of reclaiming it.
Many of these businesses sell on Ebay
They are legit businesses who did the right thing and registered for tax and vat and did not go black economy.
Margins have already been squeezed by the spring Ebay fee hike, the steep postal rises in April for everything but the 1st class stamp.
Customers are still very price sensitive so the scope to pass this on is limited.
(Chris – for some reason I can’t reply to your comment.)
But any “reverse charge” on EU acquisitions (ebay luxembourg fees) would no longer apply as the invoice is changing from ebay (Luxembourg) to ebay (UK).
Maybe I now need an accountant.
There was no reverse charge. eBay had an agreement with HMRC not to charge British business sellers VAT across the board whether they were VAT registered or not. You can read more about it here.
That stopped on the 1st of August and now all sellers will be charged VAT and for the first time can claim it back on their VAT returns if it’s an allowable expense on the VAT scheme you’re on. If you can’t claim it back you’ll pay the VAT with your eBay invoice and make less profit.
Ebay fees, have always traditionally been inclusive of VAT (luxemburg, or not), Hence any addition in VAT because they have to now pay UK VAT, should see a reduction to remove the original VAT charged, first.
This looks like a con by ebay to increase their take of sales, without 1st reimbursing the original % charged by them & included in their fee structure.
Luxemburg VAT Rate is 17%………..
It is yet another kick in the teeth for small biz, micro biz or start up. We are VAT reg and this just effect’s our cashflow, VAT itself is a total pain and out of date tax, I spend a fortune each year just paying someone to collect tax for this Gov.
Anyway prior to becoming VAT reg I would just increase my selling price on eBay. However the issue is the margins are now pretty much getting ate up by fees(ebay has a lot of them) and couriers.
Then you have to compete with so called firms that fufill from non EU and avoid VAT on anything under £18.99, those who use VAT margin schemes etc.
You also need to look at diversifying away from marketplaces like ebay and Amazon so you are not so reliant on them. This is the first peak we are planning for and not worrying to much about what we are putting up for sale on ebay for example.