From 1st August eBay have started to apply VAT to its fees, which sees business customers paying this for the first time in the history of eBay. Some of the very first people to be affected by the change are those who are invoiced in the middle of the month; other sellers will see the VAT applied to their invoices at the end of the month of August.
Business invoices will be 20% more than normal, but VAT registered companies can claim back the VAT on their next quarterly tax return, for many this could be in a month or so’s time, but for others, this could be in 3 months time subject to when your quarterly VAT return is due. This, however, could cause businesses to encounter cash flow issues as the VAT is paid monthly but can only be claimed back quarterly, which is why it’s important to update all cash projections and forecasts.
Sellers who are not VAT registered or are not currently in a VAT scheme will be unable to claim back VAT and, therefore, will see a cost surge in real terms. Margins will need to be examined but for sellers who are in categories where fees are typically 10% will see fees hike to 12%, with the 2% going towards helping run the country which has left many sellers with a bitter taste in their mouths.
How will the new 20% fees affect your cash flow?
To many, the thought of 20% VAT is hideously scary, but it’s crucial to remember that the VAT is to be paid on your eBay fees only and not your turnover. This means that in fact, the amount is relatively small in the grand scheme of things.
The £1 million turnover eBay Seller
If your eBay annual sales are £1,000,000 and you pay 10% eBay fees, then you’re paying a total of £100,000 to eBay each year. With the VAT on these charges being 20% (£20,000 annually), this works out at £5,000 quarterly or £1,666 monthly.
You’d hope a business of this size wouldn’t encounter too many cash flow problems having to pay the new VAT on fees and if it did then perhaps, there are more serious underlying issues which need dealing with.
The £85,000 Turnover eBay Seller
With a turnover of £85,000 or higher, you ought to be VAT registered and therefore able to claim back VAT Quarterly through your VAT returns. Your eBay fees will be around £8,500 per annum with the added VAT of £1,700 per year or around £425 quarterly.
With this kind of turnover losing £141 extra per month shouldn’t impact your cash flow too dramatically until you can claim it back at the end of the quarter.
The Less than £85,000 turnover eBay seller
A Gold PowerSeller with a turnover of over £6000 monthly or around £72,000 per annum will pay eBay fees of £7,200 yearly with the new VAT being £1,420 per annum or £118 per month. Businesses who are not currently VAT registered won’t be able to reclaim this back and subsequently will be out of pocket, which could affect cash flow and the day to day running of the business. However, if your turnover is lower then so will be the amount of VAT payable by yourselves.
As you’re unable to claim back the VAT, it could be worth adjusting your selling prices by the extra 2% expenditure.
The eBay sellers who are on special VAT schemes
Businesses who are on VAT schemes, for example, the Flat Rate VAT scheme whereby your turnover could be as much as £230,000 (VAT included) could be paying eBay as much as £19,000 per annum in VAT or possibly over £1,500 monthly which is ineligible to claim back. If your business is mainly eBay transactions, it may be financially beneficial to leave the Flat Rate VAT scheme and reverting to the usual VAT scheme.