Paypal is an extremely useful facility that is becoming far more widely used by many businesses – see our earlier blog about Chip and Pin from Paypal. For some small users, the existence of the Paypal account can be overlooked when they do their bookkeeping. This is particularly the case when the number of transactions is small. At some point of time the payments and/or receipts get transferred to the main bank account. It is at that point that some business then acknowledges them as sales and expenses etc.
Paypal is a bank account and, due to its greater acceptance amongst businesses, it is gaining far more significance. In order to get the tax points on your transactions correct for VAT purposes, and also to ensure that you book-keeping is complete, it is essential that you record all the transactions on your Paypal account as a separate bank account. The passing of sums between your Paypal Account and your main bank account should be treated as transfers that are outside the scope of VAT.
For many businesses this may seem like an un-necessary complication, particularly as it can be tricky obtaining the right printouts from Paypal to enable you to do the necessary book-keeping. Failure to do this however, can result in significant errors and short comings in your book-keeping. This is particularly the case if balances are left on your Paypal account and you only transfer funds to your main account periodically.
The emergence of Paypal, and its increasing use by many businesses, has the potential of creating a greater opportunity for HMRC to discredit the record keeping of unwary businesses where the need to properly record Paypal transactions is ignored.
If you use Paypal and are not separately recording the transactions you need to change as soon as possible. If you need any advice on this subject, please do not hesitate to contact DEB Chartered Accountants on 01226 245824.