Account for VAT on the full amount your customer paid, not on the smaller payout that reached your bank after your provider took its fee. The fee is a separate business cost, and whether it carries VAT you can reclaim depends on what the provider supplies, which its fee invoice or statement will show. On cash accounting, money your provider collects for you generally counts as received when it collects it, not when the payout lands.
In this article
The short version
- Account for VAT on the full amount your customer paid, not the net payout.
- The provider's fee is a separate business cost.
- On cash accounting, a payment usually counts as received when your provider collects it.
- Check your fee invoice to see whether VAT has been charged on the fee.
- GoCardless charges VAT on its transaction fees whether or not you're VAT exempt.
Output VAT comes from the invoice, not the payout
When a payment provider takes its fee before paying you, your customer has still paid your invoice in full. The value of your sale hasn't changed, so neither has the VAT on it.
HMRC's guidance on the cash accounting scheme says this directly: if you receive a payment net of deductions, you account for VAT on the full value of the supply before the deductions. Outside the scheme you reach the same answer, because your output tax is based on the VAT invoice you issued.
Here's how it looks. You invoice £1,000 plus £200 VAT, so your customer pays £1,200. Your provider takes a £12 fee and pays you £1,188. Your output tax is £200, worked out from the invoice. The £12 is a separate cost of doing business, recorded as an expense, with its own VAT question covered below.
It's easy to post the £1,188 as the sale instead, especially when it's the only figure in your bank feed. That understates your sales by the fees, and if your VAT figures come from your bank receipts rather than your invoices, it understates your output tax too.
Which VAT period a sale belongs in
If you use standard VAT accounting, the payout date doesn't change anything. VAT follows the tax point, usually the date of the invoice or the supply, so a sale belongs in the period you invoiced it, whenever the money arrives.
If you use cash accounting, VAT follows the date you're paid, and the payout date can mislead you. HMRC's guidance says that where an agent collects payments on your behalf, you account for VAT in the period the agent collects from your customer, and its time of supply manual treats money received by someone acting for you as received by you. Applied to a payment provider, a card payment taken on 31 March and paid out to you on 2 April generally belongs in the quarter ending 31 March, even though your bank feed shows it in April.
Your bank feed only shows the payout date, so near a quarter end it's worth checking the collection dates in your provider's payout report. If your provider's arrangements are unusual, your accountant can confirm which date applies.
VAT on your provider's fee
Whether the fee itself carries VAT depends on what the provider is supplying. HMRC treats some payment services as exempt from VAT, while card processing services that let a customer pay by card are taxable. Providers don't all fall on the same side.
Your fee invoice or statement is the place to check. If VAT is shown on it and you're VAT registered, you can usually reclaim it as input tax under the normal rules, provided the fee relates to your taxable business. If no VAT is shown, there's nothing to reclaim.
GoCardless, for example, charges VAT on all its transaction fees, and says this applies whether or not the business collecting the payment is VAT exempt. If you aren't registered, or you make exempt supplies, that VAT is a cost you can't recover.
How to set up your books for net payouts
The set-up that keeps your VAT return accurate treats your provider's balance as a holding account, often called a clearing account.
- Record each sale against its invoice at the full amount your customer paid, into the clearing account, on the day the provider collected it.
- Post the provider's fees out of the clearing account as an expense, with any VAT on them as input tax if the fee invoice shows it.
- Record each payout as a transfer from the clearing account to your bank account.
Your VAT return then comes off your invoices and fee invoices, and your bank reconciliation comes off the transfers, so the two stay separate. Keep every payout report and fee statement your provider sends, because they're your evidence for both the sales and any input tax you claim.
A provider that doesn't take its fee out of the payout makes this simpler still. With Adfin, each weekday payout is the gross amount your customers paid, and the fee comes to you as a purchase invoice you can post like any other. Adfin also matches each payment to its invoice in Xero or QuickBooks, and its AI agents handle reminders for anything unpaid, following rules you approve.
This article explains HMRC's published guidance and isn't tax advice. If a change to how you record payouts would change a VAT return, check it with your accountant first.
Common questions
Do I account for VAT on the gross invoice or the net payout? On the gross amount your customer paid. A provider's deduction doesn't reduce the value of your sale or the VAT due on it.
Which VAT period does a sale paid through a provider belong in? On standard accounting, the period of the tax point, usually the invoice date. On cash accounting, generally the period your provider collected the payment, not when the payout landed.
Is there VAT on payment processing fees? It depends on the service. Some payment services are exempt and card processing services are taxable, so check whether VAT appears on your provider's fee invoice.
Can I reclaim VAT charged on my provider's fees? If you're VAT registered and the fee relates to your taxable business, you can usually reclaim VAT shown on the fee invoice as input tax.
Does GoCardless charge VAT on its fees? Yes. GoCardless charges VAT on all its transaction fees, whether or not the business collecting the payment is VAT exempt.
Does cash accounting reduce the VAT on a net payout? No. Cash accounting changes when you account for VAT, not how much. You still account for VAT on the full amount before the provider's deductions.
Sources
- HMRC - VAT cash accounting scheme (VAT Notice 731) (accurate as of October 2026) https://www.gov.uk/guidance/vat-cash-accounting-scheme-notice-731
- HMRC - VAT Time of Supply manual, VATTOS5115 (accurate as of October 2026) https://www.gov.uk/hmrc-internal-manuals/vat-time-of-supply/vattos5115
- HMRC - VAT Finance manual, VATFIN2450 (accurate as of October 2026) https://www.gov.uk/hmrc-internal-manuals/vat-finance-manual/vatfin2450
- HMRC - VAT Notice 701/49: finance (accurate as of October 2026) https://www.gov.uk/government/publications/vat-notice-70149-finance/vat-notice-70149-finance
- GoCardless Support Centre - Pricing and fees FAQs (accurate as of October 2026) https://support.gocardless.com/hc/en-gb/articles/115002831125-Pricing-and-fees-FAQs
- Adfin - Pricing (accurate as of October 2026) https://www.adfin.com/pricing
