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Do I have to declare pph fees in my tax Return?

Hello,

I am registered as self employed and I have to make my first tax return. I am also italian and I live in UK only since 3 years, so I am definitely not an expert about english tax system.

I have a doubt about pph fees.

Do I have to declare the total amount invoiced and then declare pph fees as expenses to be deducted? or I can declare directly the money I've actually withdrawed and that's it?

I mean, let say in a month I've earned £1000 from invoices, and then pph kept £55 as fees. so my actual income here on my account is £945, and I withdraw that amount and put it in my bank account.

do I have to declare only £945, which is what actually arrived in my pph account (and then in my bank account as well), or do I have to declare £1000 (which I actually never seen..) and then declare $55 as expenses?

I know it's probably very easy to understand, but I am a bit confused as I've not purchased anything so I'm not sure if the fees can be considered expenses I had, and I've never actually had those money. it seems to me more like  I've asked my clients a payment considering that I was actually getting less and in my vision they've paid the fees, not me..

 

I hope someone will clarify this doubt for me, as I really want to avoid paying an accountant at this stage of my (just born) business.

Thank you for helping!

Andrea

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22 comments

Hi Andrea

You will need to speak to an accountant or seek legal advice about this

 

Hi Andrea

I realise you've posted this a while ago now, but just wanted to say: very valid point you are making there and I would like to know myself how this should be handled. Unfortunately I am unable to help, but perhaps send a message to the PPH team and ask them?

Hi Kriss,

I haven't asked to a professional, but the last tax return I've chosen the simple calculation, which is also called "money in, money out", and basically consist in declaring what you goes in and what goes out from your bank account (only related to your work, of course).

in this way I have not considered the pph fees, nor the invoices amounts, but only what I actually got in my account after witdrawing the money from pph account.

I don't know if it would've been better to do the normal full calculation and considering all the invoices as gross income and then pph fees as expenses. but the full calculation methodl require to keep a much complicated accountancy records book, which I preferred to avoid for now.

though with the new law regarding EU VAT (and UK's VAT MOSS) for digital products, I will probably have to speak with an accountant very soon, and probably start managing my accountancy in a different way starting from April. I'd suggest you to do the same, as this new law is fairly difficult to understand and there are probably a lot of implications that we can't understand. ;)

 

Hi Andrea

Thank you for the quick reply. It sounds like the best option is an accountant eventually.... Just wanted to share with you that you can actually download VAT invoices from the PPH system for each job by going to 'Payments' and there you see 'My Money Statements  Invoices ......'. Click on 'Transactions' which will show a list of all transactions relating to your account. The VAT invoices for each job are labelled 'PPH Service Fee for for Invoice #........' and you will have to keep them together with the invoice you issued to your client. I guess it's long winded and additional work and paper work.....but perhaps the only way forward in the meantime :-/

thank you for the tip but I'm not sure you understood what I meant.

in the pph fee invoices there is the VAT that they pay on the fee itself, that's not the VAT that you have to pay. following the new EU laws regarding VAT, who sells digital products out of UK should pay the VAT to the country of residence of the client/buyer. before this law, here in UK we didn't have to pay VAT, so now the UK gov has made a specific VAT procedure (VAT MOSS) which allow us to apply VAT procedures only to the products that we sell to foreigners . I don't know exactly how it works, and that's why I will contact an accountant, because at the moment (since January 2015, when the law started) I am just working with UK clients only, but it's not the best option.

Anyway, if you work with UK only, you don't need VAT, and if you choose in the tax return to use the method "money in money out" you can just declare what you withdrawed from pph, and keep the invoices just to prove the actual income of each invoice if they'll check you. 

the other way to declare the income in the tax return is to attach a business sheet in which you have all your transactions, with the date of invoicing and date of payment, etc.. I think that if you do that way, you would declare your pph fee invoices as expenses, but I am not sure about it.

I suggest you to use the simplify method for this year tax return (year ending the 5th of april) and before the end of march,  speak with an accountant for understanding what to do next year, especially regarding this business book in which you'll have to keep record of everything month by month.

 

First of all I am not an accountant.

I believe that the correct way to process your PPH transactions is to

1) Use your Buyer invoice as declared income.

2) Use the PPH expense/fee invoices as expenses.

VAT is another matter entirely and VAT accounting only really applies to VAT registered-businesses.

yes paul, I believe the same, but if you choose the simplified accounting, you should be fine by declaring as income only the money that you actually got into your bank account, and as expenses the money you've took out from the bank account. there is this option when you do the tax return and I did it in that way. though I am not an accountant neither, so I might misunderstood the use of this "money in, money out" declaration method..

regarding the VAT, since 1st of january 2015, all EU countries must apply VAT to "digital products and services" sold to other EU countries. the VAT must be paid to the country where the buyer is, following their percentages.

if we work withing UK, we don't need VAT, but we do need it working with foreigners. to help us a bit, UK has created this VAT MOSS which allow us to be VAT registered but to apply VAT only to incomes coming from other countries. unfortunately that's all I know about this, that's why I will need an accountant to decide what to do in the new tax year starting from this April

if we work withing UK, we don't need VAT, but we do need it working with foreigners.

This statement makes no sense at all.

Nobody needs VAT, but VAT applies if you are VAT registered. VAT still has to be charged if you are VAT registered and the client is in the EU.

Most PPHers are unlikely to be VAT registered.

I am sorry paul but I am not an accountant and I am not english mother tongue, so I apologize if I am not using proper words and proper sentences. but I strongly suggest you to research information regarding "UK VAT MOSS" and "EU VAT new regulation", because that's a thing which do apply to many freelancers in UK.

anyway, I think my sentence would have been more correctly written like:

if you work only with UK clients (selling digital products like designs, or digital services like web development), you don't need to register for VAT. but as soon as you get paid even only once by someone who lives outside UK, you must register for VAT, and you'll have to consider the VAT of the country of the client. this is the new EU law for digital products and services, and it's active from the beginning of 2015.

then in UK they have created this VAT MOSS, which I don't know much about, but it should be something which allows to register for VAT but apply VAT only on the incomes which are from foreigners, and don't consider it for UK based incomes.

I hope this will make it clearer, but as I said, I have not a full understanding of these things. but you can be sure that this new EU VAT law is real and if you sell digital products or services out of UK, you need to apply for VAT MOSS. 

as soon as you get paid even only once by someone who lives outside UK, you must register for VAT

I don't think that's at all true. There is no need to register for VAT under any circumstances unless your turnover exceeds a certain amount.

please paul, don't be so rude and supponent. new EU laws are running starting from 1st january 2015 regarding VAT and digital products/services.

that's not an idea or a guessing, that's a fact. search by yourself in google. I am abroad at the moment and on a mini laptop, so I'm not keen to make a research and post some links about it, sorry.

I know about the new VAT rules.

From the british government VAT registration web site:

Compulsory registration

You must register for VAT if:

  • your VAT taxable turnover is more than £81,000 (the ‘threshold’) in a 12 month period
  • you receive goods in the UK from the EU worth more than £81,000
  • you expect to go over the threshold in a single 30 day period

Andrea, on the subject of VAT MOSS.

My understanding is that this covers digital services and would not affect PPH Freelancers in the main because we supply bespoke service, not a form of digital subscription or generic product.

So you are right about out of the UK sales, but only for the supply of digitals services, something that few PPHers projects would actually be classified as.

The VAT MOSS regulations are about selling games, training, any fixed product delivered digitally, but not bespoke work delivered by electronic means.

yes, that was my vision of it, but I read some articles and posts which seemed including as digital service even works like design and development of  bespoke websites, and not only things like say selling a wordpress theme on theme-forest.

so now I am a bit confused about what actually would require VAT MOSS and what can be done as usual without VAT registration. Anyway, as I am considering to sell premium wordpress plugins which will require VAT MOSS quite surely, I will speak with an accountant somewhere in the next months and hopefully I'll be able to tell you something more precise regarding this EU VAT law.

cheers!

Personally I think VAT MOSS is a ridiculous thing for companies with a low turnover and they should have exempted small companies from this.

I guess they had visions of corporates dodging the tax by spawning subsidiaries with low turnovers.

Last year I bought a training product, electronic delivery, from a US company and to my surprise ended up paying VAT on that purchase. I think it was because of the company they were actually using to deliver the product.

Whatever the situation I think it's ill-thought out and poorly communicated.

I wonder how many companies will potentially be fined for non-compliance?

I couldn't agree more. it's clear that they aimed big companies that by selling online products to other countries, they knda steal the clients to local companies which instead would pay VAT in that country. so they wanted to force them to pay VAT within the country where the buyer is.

obviously this isn't a great deal, when the case is of a few products sold by a freelancer. unfortunately, as usual, who made the law actually didn't know how this sector is, and haven't thought about the real implications of such a generally applied law.

I still have some hope that they'll tweak it, but for now we have to deal with it and I want to be sure that I am not going to be one of those fined.

Hi guys,

I've just read this article which tells that selling bespoke services to a specific client is not liable for VAT:

"ou see, VAT MOSS only applies to digital products being sold to consumers in the EU. A good way to think of it is like this: if you design a logo for a client then you are offering a service to a business, and you needn’t change anything. If you’re simply a freelance illustrator or designer, VAT MOSS does not affect you. However, if you are also selling logo templates and so on through your own website – that are marketed to consumers – you’re possibly going to have a whole load of paperwork to do."

 

you can read the full article here: http://www.digitalartsonline.co.uk/news/creative-business/vat-moss-facts-updated-january-6-2015/

anyway, I will probably sell plugins starting from this spring, so I will hire an accountant in any case, and ask him about the pph fees as well.

cheers!

Great question, the same thing occured to me, As I have incoming and out goings.
VAT is another subject
Is not only for companies, it depends on the country you reside in and are registered as self employed.
I reside in Spain and my identification number to be able to work in the EU is also my VAT number. I am obligated to add VAT to any company/person in the EU that is VAT registered.

Christine I think your understanding of VAT is wrong.

"I am obligated to add VAT to any company/person in the EU that is VAT registered."

No. You are obliged to charge VAT to everyone inside the EU if you are VAT registered.

In the UK businesses are not obliged to register for VAT if their turnover is below a certain level. I am surprised that is not the case in Spain.

what I said about VAT was referring to the UK laws.
I know that in Italy (and probably Spain, but actually I think it's the same for the most of the UE states), every kind of business (or self employed) must be VAT registered.

in uk there are a massive amount of people working without being VAT registered, but it's a perk that most of the countries doesn't have..

LOL Correct,
"I am obliged to charge VAT to everyone inside the EU as I am VAT registered.
Autonomo status is the Spanish equivalent of self-employed or freelance and in addition covers people operating (unincorporated) small businesses. Anyone engaged in any of these activities is obliged to legalise them with respect to registration, paying the taxes and charging IVA (VAT).

There are no minimum threshold in Spain for small businesses to not charge IVA. The general rule is that everyone must charge IVA however low their turnover is. However some autonomos only offer goods or services which are exempt from VAT (exento). Examples would be educational or insurance-related supplies, which are often exempt. Also, autonomos who only invoice businesses abroad may not charge IVA to their clients, depending upon various factors (see new VAT rules).
In general, the 2 main taxes I have to file are income tax (IRPF) and VAT (IVA).

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