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Any worked examples of end-to-end payout fees?

A topic by orkn created Jan 19, 2023 Views: 903 Replies: 2
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I'm a UK based developer planning to sell games through itch. I'm struggling to wrap my head around all of the fees involved from point of sale through to GBP landing in a bank account.

I've read through https://itch.io/docs/creators/payments and searched these boards - there's lots of questions around specific parts of the process, but what I would find really helpful is a worked example covering the entire process, and preferably from the perspective of a UK business to be as similar as possible. Do any exist anywhere that I haven't found, or failing that is anyone able to help?

Specifically I am planning on using Collected by itch.io & paid later, PayPal, and a UK business bank account.

Here is an incomplete example with the process as I understand/anticipate it to be:

- A user buys the game through itch in USD e.g. for $5.00

- Itch takes some configurable percentage (default 10%) as a per-transaction open revenue share e.g. $0.50 ($4.50 remains).

- The payment processor (PayPal or Stripe) takes $0.30 + 2.9% as a per-transaction fee e.g. $0.30 + $0.15 = $0.45 ($4.05 remains).

- After 7+ days  a payout from itch to PayPal can be requested (recommended once a month). For this example, assume the proceeds from 20 sales after the above fees e.g. $4.05 * 20 = $81.00 (from gross $100).

- Some amount is taken by itch on behalf of the US government as a withholding tax. The default rate is 30% but may be lower pending completion of the itch tax interview. I don't know how to work out what I should expect this to be for a UK business. Using the 30% rate for now e.g. $24.30 ($56.70 remains).

- PayPal charge a fee for the money transfer into the PayPal account. I have read https://www.paypal.com/us/webapps/mpp/merchant-fees#paypal-payouts under Commercial Transaction Rates but am not sure what kind of payment type a payout is handled as. It looks most likely to be 3.49% (standard rate) + 1.50% (international transaction) + $0.49 (fixed fee)  e.g. $2.83 + $0.49 = $3.32 ($53.38 remains).

- PayPal charge another fee for the money transfer from PayPal into the UK business bank account. I assume this includes the exchange from USD into GBP and related fees. I don't know where to find this information out and suppose it may also depend on the bank?

- The limited company does its UK tax return and I eventually receive dividends of whatever money is left (unfortunately it seems comparatively not a lot!)

If anyone can fill in any of the blanks or offer any corrections, or even provide a worked example of their own, that would be hugely appreciated!

I'm a hobbyist developer and accountancy is not my preferred subject so I find this kind of thing tough going.

(+1)

You missed one step. 

Itch.io requires you to fill in a tax interview. They charge a fee of $3 (the company who handles the interview) which will be deducted from your first payment. Based on this tax interview, you will be given a withholding tax rate. If the UK has a treaty with the USA (which it does) there shouldn't be any withholding tax. In this case, it's up to you to declare the amount on your tax return.

PayPal does not charge me to withdraw the money into my bank account - but my bank does. I'm in South Africa, but I'm going to guess you'll have the same situation. If you use the PayPal funds to buy stuff, rather than transferring it into your bank account, you won't pay any further fees.

You don't need to trade through a company though, you can trade under your own name. Any income will then be added to your other earnings and taxed at your marginal rate - but you probably can deduct your expenses incurred in writing the games from your income (like your computer costs, software etc). 

https://www.gov.uk/set-up-sole-trader

Thanks for the quick reply! It's reassuring to hear withholding tax shouldn't have the large impact I thought it might.

On trading through a limited company, I'm planning on doing it that way rather than as a sole trader for the reassurance of having limited liability and not being personally at risk should anything disastrous and unforseen happen. I think that peace of mind outweighs the slight increase in cost and complexity - unless there is something else I am not considering!

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