Is there VAT on Stripe fees? Navigating your way through VAT is one of the complexities of being an ecommerce trader, and it can be especially confusing when managing PayPal and Stripe transactions.
To understand how VAT works with PayPal and Stripe, you must first understand what services are VAT exempt and where reverse charges apply, this has nothing to do with the platform you are selling on such as eBay, Amazon or Shopify.
We’ll come to reverse charges later. First, let’s look at VAT exempt services concerning ecommerce though the eyes of an expert Ecommerce Accountant.
VAT Exempt Services
PayPal is a VAT exempt service. This is because PayPal is a financial service. Generally, financial services are exempt from VAT. PayPal fees are generally considered non-VATable bank charges.
This means that PayPal won’t charge you VAT for using its services for ecommerce traders.
So far, so good. But what does it mean if you’re not getting charged VAT by some service providers but you are by others?
What appear to be very similar services may be treated differently depending on who’s providing them.
Stripe is an alternative payments platform to PayPal. But while it offers tools to help ecommerce traders manage payments, it’s not a financial service.
Stripe allows the merchant to collect card data from customers and transmit this information to the merchant acquirer for processing. But, unlike PayPal, Stripe doesn’t actually process payments.
Because of this subtle but critical difference between a financial service (PayPal) and a payments facilitator (Stripe), you can see differences in VAT charges.
When, therefore, do VAT charges apply to Stripe services? When the reverse charge applies.
What is the Reverse Charge?
In the reverse charge system for VAT, the customer doesn’t pay VAT to the supplier but instead declares it on their own VAT return.
When dealing with an EU supplier like Stripe, the reverse charge system applies to the services provided.
There are two main reasons for the reverse charge:
It applies to services purchased from abroad and
It’s an anti-fraud measure.
The reverse charge applies to services you purchase within the EU but post-Brexit, obviously, are now outside the UK.
It is the amount of VAT you would have paid on a service had you bought it in the UK. You add this amount to the total you’re paying HMRC for a particular quarter, but also to what you’ll reclaim for this quarter.
Essentially, you should end up not paying or reclaiming any extra. The accounting system you use should handle this smoothly and straightforwardly.
Why does Stripe come under the reverse charge rule?
We’ve already seen that they’re a payment facilitator, not a financial services provider. But also, they’re based in Ireland in the EU.
So, unless you’re located in Ireland too, the reverse charge will apply.
You will need to reflect the reverse charge invoice as both a sale and a purchase in at your home country’s VAT rate. This means that you need to gross up your sales and purchases and could push you over a threshold for VAT registration if not already registered.
VAT Fees on Payment Services, Yes or No?
Let’s summarise.
If your ecommerce store uses PayPal, you won’t be charged any VAT by the provider.
If your store uses Stripe, you will be charged VAT, but this will be through the reverse charge system, where you declare the amount and reclaim it. Stripe fees are subject to VAT, and this is accounted for through the reverse charge system.
It may sound a bit tricky but it does make sense once you understand the rules.
Other VAT questions we get
How to get your ebay vat receipt? You will need to request one from the sellers directly.
Is there vat on credit card charges? No, there isnt
How to get an amazon vat receipt? you can request this on the order page or if you have a business account, they will automatically send them to you.
Do you need a vat invoice to claim VAT? Yes, you need to ensure you have a VAT invoice to reclaim VAT
Do third party sellers charge VAT? Sometimes, some are VAT registered and some are not, so you will need to request an invoice
How does VAT on Shopify work? We have an article on that!
Is there VAT on bank charges or do bank charges have vat? banks are financial services and are exempt from VAT. You can ignore these fees for your vat calculation.
What does paypal cost? This depends but it ranges from 1-2% of the transaction fee. Paypal pricing can vary depending on your account.
Paypal seller fees uk vs ROW? You will get poor rates if you receive USD into a GBP paypal account and we recommend setting up multiple currency accounts if you do this
Is there VAT on Stripe fees? Stripe fees are subject to VAT, and this is accounted for through the reverse charge system. This is different from PayPal fees, which are generally considered non-VATable bank charges.
How do Stripe fees impact a sole trader? A sole trader must account for VAT on Stripe fees through the reverse charge system, which can be complex and any guidance on this matter would be greatly appreciated.
Can you describe Stripe fees and their VAT implications? Stripe fees are treated differently from other payment facilitators like PayPal. They are subject to VAT and must be accounted for using the reverse charge mechanism.
