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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5115
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I need a little advice as I'm starting a marketplace website

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I need a little advice as I'm starting a marketplace website for high street shops connecting buyers to sellers. I am planning on taking full payment via paypal or similar service embedded into my website from customers and then paying/transfering the sellers in full less commission. This means the sellers dont need to set up their own online payment service. Once the payment is processed it will be paid into my business bank account in full less transaction fees. My question is am I responsible for VAT on the total sale or just on the commission that I will be charging to the sellers for the sale? As I see it, I am acting as an agent between buyer and seller and as part of my service am handling the online transactions (albeit through a 3rd party). This leaves sellers responsible for paying VAT (if they are VAT registered) on the remainder of the sale after commission? As a note some of the vendors may not be VAT registered as they wont meet the requirement.
If I am responsible for the VAT on the whole sale and not just my commission, this would make the business non viable due to a low average transaction. In this case If I were to sign up all sellers to a online payment service such as paypal and the monies went straight to them rather than via my business and I charged commission after, would this exclude me from paying VAT on the full sale amount?
Sorry if this is confusing but I have tried thoroughly researching and found myself running around in circles.
Any advice will be really appreciated.

Hello and welcome to the site. Thank you for your question.

In general financial services are exempt from VAT.
As I see it you are acting as a cash handling agent on behalf of your client and on receipt of money from the customer, you deposit the funds into your business account and then pay your client the amount less your commission charge.

You are responsible for VAT applicable to the charge for service provided and not the whole amount you received in the first instant.

If I were you, I would maintain a separate business bank account designated as client account so that you can separate it from your own funds.

It would be preferable if you were to ask your clients the sellers to sign up to a online payment service and that the monies went straight to them rather than via your business. You would raise an invoice for commission and charge VAT on that commission.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.
Thank you for your response, it seems that from what you have said I am only liable for VAT on the commission. This is what I had worked on from the beginning but had someone say otherwise which put me in doubt.
You say it would be preferable to sign up sellers to an online payment service so monies went straight to them. Why do you recommend this?
i would rather not to do this just for ease of getting clients signed up but am keen to understand the pros and cons of the two methods.
Really happy with your response and would really appreciate your expertise on this too.

Peter, thank you for your reply.

My rationale for recommending that you get the sellers to sign for online payment service is -

It is such simpler if you did not have to separate your turnover from monies received that are not your business income. Less explanation to provide in the event of an enquiry from different sections of HMRC.

As a start up business you could handle this with ease but as the business grows and flow of money increases, you may need additional resource to support this service.

It is possible to provide the service provided you have a proper audit trail.. all these tasks require time and effort and have a monetary value attached to them.

I maintain a separate client's account for monies I receive on behalf of my clients but I am required to do that for professional reasons.

You don't have to maintain a rigid discipline of separating monies coming into your business account.

If you feel that you would rather offer this service now, then you should review it regularly once your business grows.

I hope this is helpful.

Customer: replied 2 years ago.
Thank you for your help, it has been very useful and has given me food for thought.
Is there a way I could contact you again in the future when I have more questions?
Many thanks
Peter, thank you for your reply and good words.
I will be happy to assist you in the future. Ask for me and address it toCustomerin the body of your question.
I hope this has been helpful. and other Tax Specialists are ready to help you
I thank you for accepting my answer.
Best wishes.