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Tax and Paypal

Discussion in 'General Business Forum:' started by ~Luke, Oct 16, 2010.

  1. ~Luke

    ~Luke Junior Member

    I am going freelance and I want to do everything properly and to my best advantage.
    one thing I am a bit confused with is how paypal comes in to the 'tax' situation.

    Obviously, when a sale is made you keep about 20% of each sale aside to pay for the tax assessment at the end of the tax year. Does paypal come into it anyway when you fill in the tax assessment? I havent filled in a tax assessment form yet so I dont know what it asks but I guess my questions is do you have to document paypal fee's etc in anything? like tax?

    I hope i make sens, I'm new to this side of things.
  2. Greg

    Greg Active Member

    Hi Luke,

    With your self assessment you have sections for your total income, and your total expenditures, so keep a record of all your income (invoices) and all your business expenditure (receipts + invoices). So in the case of PayPal I think you would be best keeping a running total of the PP fees, and a copy of all the PayPal invoices that document the fees, as the fees have come out of your income then it should be classed as expenditure, I think.

    If you can get some decent accounting software then you'll be able to automate all the calculations and export your final year end stats as a print out for an accountant (or yourself to file your self assessment).

    Hope that helps,
  3. ~Luke

    ~Luke Junior Member

    Thank you so much for explaining. Do you do it this way? Would you be able to recommend any software? Preferably cheap and for Mac.

    If anyone can advise that would be great.

    Many thanks,

  4. Greg

    Greg Active Member

    Hi Luke,

    I don't take payments for invoice by PayPal to be honest, I ask for payment by BACS or cheque on my invoices, if a client did want to pay by PayPal I'd probably ask them to cover the additional fees.

    As for accounting software, here's a recent thread on the topic:
    (Which also includes links to previous accounting software threads)
  5. ~Luke

    ~Luke Junior Member


    Does anyone else here do freelance design and use paypal for the transactions? How do you work it out?

    Im trying to find the best approach. Im selling hosting aswell as design services but the site ties into paypal for the payment gateway. It all works great, im just not sure how to 'document' it when it comes to 'the books', taxes etc.
  6. ~Luke

    ~Luke Junior Member

    Hi Greg,

    As I am a new freelancer, apart from keeping an excel spreadsheet of expenditures and one of earnings in a monthly format what other documents would I need to keep?

    I want to make sure I get it all right from the start.

    Could you explain all the things that you do in terms of documents?

    Many thanks for your help,

  7. Wee Jimmy

    Wee Jimmy Senior Member

    As far as PayPal goes, I remember getting an email from them stating that they had frozen all actions as I had recieved over £1500 in the space of a month (actual sum was nearer £2500). And that they had been instructed by the authorities to do so incase of money laundering.... had to ring up paypal to confirm a load of details etc.

    that was the last time I ever accepted paypal for a full design + back-end development job!
  8. Greg

    Greg Active Member

    All your receipts that relate to expenditures, and a copy of all your invoices for your income.

    Sole trader self assessment tax guide
    Hope that helps :)
  9. IainQ

    IainQ Member

    I use Paypal because people can trust it - after all you want to gain financial trust with clients - I also try and get peolpe to pay me half the money so i have a safety net or pay in full before final files get sent across.

    As for limits to payments - I verified my account which means there isn't a cap on it - they contact the bank electronically to verify your account.
  10. Thomzo

    Thomzo Member


    You will need to show what you have invoiced to your client on the income side of your tax return. Make sure you really do send out a proper invoice for every single job you do (it can be electronic). Keep a copy of the invoice you send out.

    Keep a list of every cost you incur, including your paypal fees, and any other costs (stationery, travelling, telephone etc). Make sure you keep all the receipts to support these costs. One of the most important things is to make sure you keep good enough notes about all your costs. It's all very well to keep a scrappy till receipt from ABC corner shop which just says something like "dept 12 £4.35" but neither you, your accountant, nor the tax man will know what it was for in two years time. Either write on the receipt (if there's room) or stick it on a bigger bit of paper and write on the paper that it was for staples or sellotape or whatever.

    If you drive anywhere, keep a list of the miles you travel, where you were going and why. Eg. 23 miles from home to ABC Street (Postcodes help here) for meeting with Potential Client Ltd on (date). Any other travel, keep the receipts and make the same notes.

    If in doubt, keep it. Find a nice big filing box and pop everything in there in the same order as they appear on your bank statement, credit card etc. The neater and tidier you keep everything, the easier it will be for either you or your accountant to do your tax at the end of the year.

    If you use a spreadsheet to list your income and expenses, it can be very helpful if you number all the receipts (1, 2, 3 etc) and then put the reference number on the spreadsheet. It makes it much quicker to find everything later.

    A good accountant will give you an hour's free advice before you sign up with them. Use the time to ask what records you need to keep and what information they will expect from you.

    Sorry for the long reply.

  11. Greg

    Greg Active Member

    Good reply Zoe, lots of advice in there that can save you tons of hassle and headaches if done from day one, and I know that from personal experience of not being organised from day one, a stitch in time saves nine as they say :)
  12. Eagle

    Eagle Member

    I'd advise setting aside 35% of all your income - don't forget you'll probably be getting spanked for Class 2 and Class 4 NICS too...

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