PayPal in your bookkeeping: fees, dollars and your bank statement

Clients who pay through PayPal are convenient, right up until you do your books. The money lands on a balance that is not your bank account, fees come off that you never see, and the withdrawal to your bank looks a lot like revenue. Here is how to fit PayPal into your administration without counting your revenue twice.

PayPal is an account, not revenue

First and most important: treat your PayPal balance as a payment account, because that is what it is. Your account runs through PayPal (Europe), a bank licensed in Luxembourg, and the balance sitting there is simply your money on an account that is not with your Dutch bank.

Everything else follows from that:

• Your revenue arises when you invoice (or, under the cash system, when your client pays), not when you move money to your bank.
• The balance on your PayPal account belongs in your administration, like any other account.
• A withdrawal to your own bank only changes where the money sits.

The classic mistake is looking only at your bank statement. There you see € 1,480 arriving from PayPal on 3 March and you book it as revenue. But that amount is five clients who paid earlier, minus the fees PayPal kept. The real revenue is higher, the costs are missing and the dates are wrong.

Withdrawals and card deposits are not bookings

Money moving between your own accounts is neither revenue nor cost. Two cases show up constantly:

• Withdrawal to your bank account. Your money moves; your profit does not change.
• Card deposit. You pay for something with PayPal while your balance is too low, so PayPal pulls the amount from your linked bank account or card and pays the purchase with it. In the export you see two lines that cancel each other out.

With a card deposit the real expense sits on your bank statement, as a debit from PayPal. Book the cost there, with the supplier's invoice attached. Book it from PayPal as well and you count the same expense twice.

PayPal's transaction fees

PayPal keeps a percentage plus a fixed amount out of every payment you receive. You never see those fees on your bank statement, because they are gone before the money reaches you. They are still deductible business costs, so they belong in your books.

One thing matters for your VAT return: there is no VAT on them. Payment services are a VAT-exempt financial service, so PayPal charges you no VAT and there is no input VAT to reclaim. Do not file them as a 21% expense; that claims input VAT that never existed.

Book gross, not net: € 500 of revenue and € 15 of costs, not € 485 of revenue. Your invoice says € 500, and that is the amount your VAT return needs.

Receipts in dollars

If a client pays in dollars, that amount lands on your PayPal balance in dollars. You book the revenue in euros, at the rate of the day the VAT becomes chargeable, normally your invoice date. See invoicing in a foreign currency.

PayPal then converts your dollars to euros itself, at its own rate with a margin built in. That conversion appears as a separate pair of lines in your export. What ends up in euros on your balance is what the job actually brought in; the difference with the revenue you booked on the invoice date is an exchange result, which belongs in your profit but not in your revenue and not in your VAT return.

Refunds and chargebacks

A refund corrects the matching invoice: a partial refund becomes a credit invoice for that part, a full refund credits the whole invoice, and the VAT corrects with it in the quarter you credit. A chargeback, where the client reverses the payment through their bank or card issuer, works the same way unless you win the dispute and the money comes back. Dispute fees are costs, again without VAT.

Paying suppliers with the PayPal card

If you buy something and pay with PayPal, where the money came from decides where you book it. Paid from your balance? It is an expense from your PayPal account. Funded from your linked bank account or card? The expense sits on your bank statement and you book it there.

The rule to remember: book every expense once, on the account the money actually left. And keep the supplier's invoice. A PayPal line saying "Payment to Acme Ltd" is not an invoice and gives you no right to deduct input VAT.

Exporting your PayPal transactions

PayPal has no accounting integration for ordinary users; that runs through a partner programme. So you export and import.

1. Log in to PayPal and go to Activity.
2. Choose Statements and then the activity report.
3. Pick the period and all transactions, not just completed payments.
4. Download as CSV, not as PDF.

The PDF looks tidier but lacks the transaction references and the balance column, and those are exactly what accounting software needs to deduplicate and to check the import. Do this every quarter, well before your VAT return. Keep the downloaded file yourself too: your record-keeping obligation runs seven years, which is longer than you can count on re-creating an export.

How Finq handles it

The Bank page in Finq has a separate PayPal tab. You import the activity report there and Finq does the translation into your administration:

• Transaction fees are booked automatically as a cost, separate from the receipt and without VAT, so gross stays gross.
• Withdrawals to your bank and card deposits are ignored automatically. The payment funded by a card deposit is ignored too: that expense belongs to your bank statement.
• Amounts in other currencies are converted. If PayPal supplied its own conversion, Finq uses that rate; otherwise it suggests the ECB rate of that day. You can adjust the rate per line, or type the euro amount from your statement and let Finq work out the rate.
• Invoices are matched on the invoice number that PayPal includes in the export, and a refund follows the same invoice automatically.
• The balance is checked, per currency separately, so you see at once whether your export is complete.

Bank statements go on the Bank tab, PayPal on the PayPal tab. See how the accounting works.

This is general information, not personal tax advice. The VAT exemption for payment services is in article 135 of the EU VAT Directive and article 11 of the Dutch VAT Act; check your own situation on belastingdienst.nl or with your bookkeeper.