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Letters sent this month remind businesses to recognise sales for VAT and corporation tax purposes before the deduction of payment processor fees.
Three letters are being sent to different business populations this month, from HMRC’s Large Business, Mid-Sized Business and Intelligence, and Surveillance and Border Control (ISBC) departments. All letters contain the same key message.
The letters remind the recipient how to account for VAT and corporation tax when making sales using payment processing services (PPS).
- Businesses need to account for VAT on the full amount that they charge customers (ie, the amount before PPS fees are deducted).
- Businesses should account for sales before PPS fees for corporation tax purposes, but not including the amount of output VAT charged to customers on those sales.
The recipients are asked to make sure their systems and processes correctly account for VAT on the full value of supplies and can distinguish PPS fees from the other receipts and expenses of their trades.
Businesses are then asked to:
- check whether they have accounted for VAT correctly in respect of PPS over the last four years;
- check that they have calculated their profits correctly in respect of PPS income and charges in their most recent corporation tax return; and
- make any changes as necessary.
Businesses are requested to do this within 45 days of the date of the letter. No response is required if the business has accounted for VAT and corporation tax correctly.
The letters advise that no penalties will be charged in respect of any errors identified, provided the business took reasonable care in preparing its returns. However, if the recipient finds an error after checking those returns and fails to notify this, HMRC will treat this as careless behaviour, even if the error was neither careless nor deliberate on the original return(s).
ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
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