Business development · 8 August 2017

British retailers hit hard by VAT changes to eBay fees

eBay fees change
The eBay fees change has come without much warning for retailers
New measures introduced to eBay fees on the ecommerce platform mean thousands of businesses not VAT registered will incur extra costs from selling online.

Earlier in the summer, eBay wrote to business sellers and informed each that from 1 August 2017 VAT would be applied to all fees. The 20 per cent tax now being applied will have less of an impact on those which are VAT registered, but coulderode margins for those trading under 85, 000 and on the flat rate scheme.

Parties likely to be impacted by the rise in eBay fees the most are those that transitioned from being a private seller, which do not have VAT added to sales, to a business seller.

The eBay fee changes were introduced in response to powers given to HMRC by the chancellor in 2016. This meant Britain’s tax regulator could force online marketplaces to ensure overseas customers were registered and accounting for VAT.

As part of the new payment policy, sellers can reclaim VAT from eBay transactions on VAT returns. Previously, eBay deducted VAT from sales if a VAT number was provided by a seller alongside special dispensation which removedvAT fees entirely.

Alan Pearce, VAT partner at law firm Blick Rothenerg, said: ‘so far, according to HMRC, over 7, 000 new internet traders? applied for VAT registration in 2016, compared with just 700 in the previous year, suggesting that the new powers are having a significant effect. It is expected that these new measures will secure a much needed additional 875m of VAT revenue by 2021.

In March 2017 HMRC published a report called Tackling the hidden economy: Sanctions. Contained within it was a look at the kinds of new penalties and sanctions that could be applied to those operating in the so-called hidden economy.

Following a two month consultation period between August and October in 2016, HMRC concluded that the 2014/15 tax gap due to the hidden economy stood at 6.2bn 17 per cent of the total tax gap.

Business Advice spoke to one small business retailer about the impact, and discovered cash flow was a particularly prevalent issue.

Tim Grinsdale is director at TOAD Diaries, a business which has a current turnover of 200, 000 and does 40 per cent of its selling through eBay.

His first point was simple, eBay did not provide enough advanced warning about the changes. UK sellers were officially noticed on 21 July. This left us with less than three weeks to assess the impact of this change and adjust accordingly, he added.

When asked about the changes to his business, Grinsdale pointed towards cash flow. Despite being VAT registered, having to recoup this money later will produce the need for a rethink on eBay selling. Prior to the VAT change, we could use the revenue generated on eBay in a more fluid way. For example, we could increase our AdWords spend to drive more sales before our quarterly VAT return was due. Thus leveraging the benefit of having the VAT cash-in-hand.

this advantage is principally what has justified our strategy on eBay as the profit margins on the platform are much tighter than those on our site. Ebay prices will likely need to change to compensate.

Grinsdale now believes that for TOAD Diaries to maintain its end price for customers, the business risks losing money. There is a balance to be struck as eBay customers, in particular, tend to be seeking keener pricing. So we risk losing sales if we price too high in adjusting for this change.

One strategy Grinsale believes could work is adding the postage price separately, instead of building it in. This would mean only paying the 20 per cent VAT rate on the product, not overall price. However, taking away free postage decreases the visibility of listings on eBay, so this approach risks reducing sales.


 
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ABOUT THE EXPERT

Hunter Ruthven was previously editor of Business Advice. He was also the editor of Real Business, the UK's most-read website for entrepreneurs and business leaders at the helm of growing SMEs.

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