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Author Topic: UK microstock and Accounting practices.  (Read 971 times)

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« on: August 27, 2020, 23:25 »
0
Hi
This is a discussion for more for UK based stock photographers, as its more about UK TAX and accounting.

Im interested in how other UK people organise and account for their stock earnings. No details, no personal info, just outline info. Disclaimer "Im not an accountant"

Heres mine, i'm not saying i'm right, it might help others, I'd love to know what you do.
The TAX office once told me that they wanted me to account for that overseas currency I earn (dollar, euro etc) actually WHEN I earn't it, and not when it arrived in my bank.
This is a very important point as exchange rates and transfer fees vary with time.

So I account for all stock earnings, monthly (not daily), split up by stock site.
This is also grouped by currency, ie all USD sites in one table, all Euro sites in another table etc.
Then I apply the exchange rate GBP to <whatever currency> to that table at the start of each month.
So, yes, I only use one variation in exchange rate per month.
This forms the basis of my earnings, for tax accounting purposes (self assessment)

Now, in reality, this isn't the same as my actual earnings.
In reality this is what happens.
The sites that payout every month, will be similar to what ive accounted for. Not exactly the same as exchange rates change hourly, and different organisations use slightly different rates (don't hold me to this).
Some low paying sites may not payout until for (lets just guess) 12 months.
So that money wont hit my PayPal account until long after i've accounted for it.
That also means the conversion rate (exchange rate) wont be the same as when i accounted for it originally.
But this is how the TAX man wanted me to account for these earnings, so ok, you will win some, you will lose some, as exchange rates go up and down.

Also Paypal (or whatever banking system you use) charges a 'fee' for the conversion.
That fee i haven't accounted for anywhere, and its something I think i need to account for, hence putting my ideas down here.
Paypal don't actually 'charge' a fee, but its hidden in the exchange rate. A bit sneaky I think?

For the type of businesses we are, its quite a complicated accounts process, and i've been doing this for many years.

Look forward to hearing your processes and experiences.

UPDATE
HMRC "Cash basis accounting" states quote "With cash basis, only record income you actually received in a tax year. Dont count any money youre owed but havent yet received." unquote
I was told (gov tax official) that because my stock earning, 'hit' my account, (albeit my account in an overseas stock library before i've been able to draw it down to PayPal or similar), then thats when i account for it.
It's a bit weird because I cant actually get the cash from those sites that don't allow you to draw down before you hit a certain minimum cash value.

 
« Last Edit: August 28, 2020, 00:41 by BigLeague »


« Reply #1 on: August 28, 2020, 04:04 »
+4
I declare whatever appears in my bank account as UKs. If you're paying taxes on imaginary amounts of money you never get then you're doing it wrong.

I am a sole trader though, so that might make a difference if you're operating through a ltd company structure.

Your way sounds way too complicated to me. My accountants have talked to HMRC over the years to ensure I'm doing it correctly and to get me out from being VAT registered.

« Reply #2 on: August 28, 2020, 04:27 »
+1
I am not from the UK, but from Germany, but I am also doing it like fotoVoyager. I only declare the money I actually get, not some fictional amount calculated by what 0.10$ were in on the day the sale happened and everything else sounds wrong to me. If between the time the sale happens and the time the I get the money the exchange rate got worse, I don't understand why I should be the one to pay taxes on the money that I am actually not getting - The stock agency is holding on to the money and till the moment I get the money, it's theirs and I am not paying taxes on it. Just imagine an agency would suddenly close your account or go out of business and you would actually never get your money - Would you still pay full taxes on the money from sales you never got paid for? It's quite similar to that. It's not your money till you get paid.
I do include any fees from PayPal to the earnings through, because unlike with money stitting on a stock agency's site, that money is actually mine the moment it hits my PayPal account, so I have to pay taxes on all of it, even if I have to pay fees with it. So, basically I declare taxes on everything I get on my PayPal account according to the exchange rate on the date I get the money, not on what I get transferred to my bank account on a different date.

 It would be something different if you sold images on your own website and got the money in real time - Then you would need to pay taxes on the money according to the exchange rate on the date the sale happened, as that's when you get the money, regardless of when you actually transfer it from your PayPal (or any other service) to your bank account and what the exchange rate is at that time. But with stock agencies the money is not really your's till you get paid by them, so no logical reasons why you should pay taxes before you get paid.


In your case I would really double check with your tax office whether what you were told was correct. I am not saying that I know things better than a tax office (especially since yours is not even in my country and might have other rules), but I have made the experience that, at least here, when it comes to "modern" and not conventional earning structures through the internet, a lot of personel in the tax office seem to be unsure how to handle it correctly, or don't even fully understand it. I remember the first time I went there to ask some questions about earning money by selling art online, the staff I talked too had a lot of trouble understanding the concept and she seemed like she was just guessing around. I even got a written note that said that there was no guarantee that the information I got was correct and that if I did something wrong with my tax declaration based on that information, I would be the one to be held accountable.  :-\
« Last Edit: August 28, 2020, 04:32 by Firn »

Noedelhap

  • www.colincramm.com

« Reply #3 on: August 28, 2020, 04:28 »
0
I'm from the Netherlands, and I'm no accountant either, so I don't know the differences between our tax systems, but from what I read you and that government tax official are overcomplicating this.

The way I see it, there are 3 moments you can consider it "received" taxable income (and treat it as such):
- When you make a sale
This is a tax reporting nightmare. Since most agencies have a delay in reporting the sale to you, or do so in batches, or aren't transparent in when a sale occurs and in what currency, it's impossible to properly account for every sale. And what about the refunds?
- When the money hits your agency account
The money accrues in your agency account until a certain treshold is reached or until payout date, so it might be months before you actually receive the money in your bank account. This makes it hard to properly account for all the fees you incur, the currency conversions. Another tax nightmare.
- When the money hits your Paypal/bank account
This is what I do: I receive the money in my Paypal account, I use an Excel sheet to keep track of the amount per agency each month, and everything gets reported to the tax office at the end of the fiscal year as one lump sum. I only report the EUR amount I receive after currency conversion/Paypal fees, not the USD amounts, because fiddling with daily or monthly currency exchange rates is too much of a hassle and prone to errors.

In 10 years of microstock, I've never had any problems with the tax office. 
If any government tax official would tell me I should report every sale when they occur, then I'd gladly tell him he's out of his mind.
Keep in mind, the tax office is old-fashioned, lagging behind and still not up-to-date with all current technologies, so I don't expect them to know what's the best way to handle this.

 
« Last Edit: August 28, 2020, 04:37 by Noedelhap »

« Reply #4 on: August 28, 2020, 04:48 »
0
Firstly Paypal don't charge you a fee its paid for by the agencies so unless you signed up for a Paypal business account theres nothing to account for.

Its not sneaky as you put it Paypal have a business to run and like any bank, or bureau de change you have a an exchange rate that is poorer than base rate so they can recoup costs.

Secondly just account for earnings when they actually arrive in Paypal.

Treat it as a cash receipt.  It has to be done this way as you don't issue invoices to the stock agencies.  Also if you try to account for the sale prior to payment you have the complication of dealing with image sales being credited.

Never had any problems with the tax office doing it this way in over 8 years.

Your method sound like someone who is over thinking things.

The HMRC/Tax office were incorrect in their advice.

« Last Edit: August 28, 2020, 04:52 by Bad Robot »

« Reply #5 on: August 28, 2020, 04:55 »
+2
Firstly Paypal don't charge you a fee its paid for by the agencies so unless you signed up for a Paypal business account theres nothing to account for.

Actually they do. If you get money in a currency that is not your country's, they charge you a conversion fee in addition to the exchange rate. You might not have noticed this, because it's never listed seperately, but they do:
https://www.paypal.com/uk/smarthelp/article/how-does-paypal-calculate-currency-conversion--exchange-rate-faq1835
Quote
If a currency conversion is needed for your payment, we'll use a retail exchange rate. The retail exchange rate (set by an outside financial institution) is our wholesale cost of foreign currency plus a currency conversion fee.
That's the reason why the exchange rate from PayPal always seems to be a crappy one compared to the official exchange rates and you always end up with less money than what you would get with the official exchange rates.

« Reply #6 on: August 28, 2020, 06:08 »
0
great feedback thanks.

1. Ive been trying to clear up the paypal exchange rate hidden fee thing, and I've not got a clear answer from PayPal yet. But im pretty sure its wrapped up in the rate, thats why i called it sneaky. Im asking them that I should be able to see this fee as its possible to claim it back in deductions. I cant see that I'm going to get anywhere with this though.

2. ive done this way of accounting for 10+ years based on HMRC advise, but i much prefer your way, account for what hits your paypal acc. I might just swap to that, starting for this years period, or maybe ill ring HMRC to check.

« Reply #7 on: August 28, 2020, 09:24 »
0
@Noedelhap what about if a dollar amount hits your PayPal, and you don't convert and withdraw it to GBP for 2 weeks, you cant account for the actual dollars cant you? you can only account for the converted amount in GBP?

And if thats right does it matter that you accounted for it two weeks (or whatever time) later than it actually hit your PyaPal account?

Noedelhap

  • www.colincramm.com

« Reply #8 on: August 28, 2020, 10:30 »
+1
@Noedelhap what about if a dollar amount hits your PayPal, and you don't convert and withdraw it to GBP for 2 weeks, you cant account for the actual dollars cant you? you can only
account for the converted amount in GBP?

Correct, I can only account for the converted amount (in EUR, in my case). Almost all of my microstock revenue coming into Paypal is in US dollars, save Adobe and some small agencies who pay me Euro (so no Paypal conversion fees there).
I always make sure to withdraw the same day. Paypal takes off some "hidden" fees for currency conversion (market rate -2.5%, it's not really specified), but that's not relevant for my tax returns. For the tax returns I simply use the net amount that comes into my bank account (so I don't deduct the Paypal fees separately).

And if thats right does it matter that you accounted for it two weeks (or whatever time) later than it actually hit your PyaPal account?

No, not really, but to keep things transparent (should I ever get audited) I never wait two weeks to withdraw it. I withdraw every amount almost immediately, so that the Paypal and bankaccount transaction are in sync.


 

« Reply #9 on: August 28, 2020, 10:40 »
0
@Noedelhap what about if a dollar amount hits your PayPal, and you don't convert and withdraw it to GBP for 2 weeks, you cant account for the actual dollars cant you? you can only
account for the converted amount in GBP?

Correct, I can only account for the converted amount (in EUR, in my case). Almost all of my microstock revenue coming into Paypal is in US dollars, save Adobe and some small agencies who pay me Euro (so no Paypal conversion fees there).
I always make sure to withdraw the same day. Paypal takes off some "hidden" fees for currency conversion (market rate -2.5%, it's not really specified), but that's not relevant for my tax returns. For the tax returns I simply use the net amount that comes into my bank account (so I don't deduct the Paypal fees separately).

And if thats right does it matter that you accounted for it two weeks (or whatever time) later than it actually hit your PyaPal account?

No, not really, but to keep things transparent (should I ever get audited) I never wait two weeks to withdraw it. I withdraw every amount almost immediately, so that the Paypal and bankaccount transaction are in sync.

Thats a good idea, unfortunately im lazy with the withdrawing that quickly, I must follow your good example. Even then, its still going to be different

And that Paypal 'fee' should be claimed back really. Self assessment allows up to 500 of bank fees if you are using the cash based system (that MAY include the PayPal conversion fee, ask an accountant)
https://www.gov.uk/expenses-if-youre-self-employed/legal-financial


« Reply #10 on: August 28, 2020, 14:50 »
+1
I declare what hits my actual bank account in gbp. You don't have the money shown on the agency site. It's just a promissory note and can be clawed back (refunds) or even disappear along with the agency (has happened may times before). It's not like they are keeping it in escrow for you.

There's also no point using actual exchange rate. As mentioned PP takes a hefty hidden fee off that. I don't leave money in my PP account for any amount of time anyway. When I first set up I was always on the phone to HMRC and their attitude at the time was they didn't really care as long as the tax burden was the same/ correct. Maybe things have changed or you just got someone who didn't understand the business (maybe they thought you actually had money in an overseas account looked after by these agencies). I mean a few agencies even had/ have your earnings as "credits" rather than dollar amounts before cashing out. How would you declare that?

« Reply #11 on: August 30, 2020, 00:27 »
0
All good points, thanks
Another tip for anyone listening, im using brightbook (free accounts software with paid features if you need them).
I gotta say its a great bit of online accounts software worth checking out. The 'real human' email support is amazing. https://mybrightbook.com/ its been around over 10 years so its reliable.

Are you using software or spreadsheet? (or what)



« Reply #12 on: August 31, 2020, 06:42 »
0
All good points, thanks
Another tip for anyone listening, im using brightbook (free accounts software with paid features if you need them).
I gotta say its a great bit of online accounts software worth checking out. The 'real human' email support is amazing. https://mybrightbook.com/ its been around over 10 years so its reliable.

Are you using software or spreadsheet? (or what)
I just use a spread (well two really, one for keeping track of my cashout requests and one for my actual accounts, figures move from one to the other as payments come in).

I really don't think about the money buyers pay to agencies as my income. We don't sell direct to the customers, the agencies are the ones we have agreements with and pay us.

It is also thankfully how HMRC thinks about it or you would have to register for VAT as you do when you sell anything digitally directly now (even if you are below the threshold).
 
EDIT: "spreadsheet", not "spread", sorry was on my phone
« Last Edit: September 01, 2020, 05:00 by Justanotherphotographer »


 

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