***DISCLAIMER***
The team at Link My Books are happy to provide users with technical assistance in applying tax rules to their Link My Books setup. We are not Tax Advisors and so our advice and suggestions on the application of tax rules cannot be construed as tax advice. We highly recommend that users seek advice from qualified accountants for their tax compliance.
Since EC Business VAT Registered customer sales may be Zero Rated by the Amazon VAT Calculation Service, Link My Books has a feature which allows you to see a list of those sales effected in a format ready for your EC Sales list submission to HMRC.
The information we present to you is taken from an analysis of the Amazon VAT Transactions Report which is only available monthly on the 4th of the month following. As this is the case the information will be available for January on 5th February in Link My Books for example.
If you are on our new Tax Jurisdiction grouping setting then the VAT rates on Zero Rated Business Sales are settled to "Zero Rated Income" by default but you will still need to manually submit your EC Sales to HMRC. You can check which grouping version you are on via the Settlement Settings page:
When you are using our Tax Jurisdiction grouping we will be separating your Zero Rated EC Business Sales out allowing you to choose a separate tax rate just for those, this is usually "Zero Rated Income" .
You will still need to submit your EC Sales List to HMRC. If you only sell on Amazon then this is really easy for you as we now have a downloadable HMRC Submission File available:
You can upload this directly on your HMRC EC Sales dashboard or provide the file to your accountant if they normally fo this for you.
If you sell on other marketplaces and incur EC Sales there too, you will need to add those sales to the file before you submit it to HMRC.
Please note that if you choose to use the "Zero Rated EC Goods Income" tax rate instead of "Zero Rated Income" then this can cause errors in your EC Sales List when we post your sales data to Xero or QuickBooks.
We suggest you use "Zero Rated Income" instead and then manually adjust for your EC Sales as outlined below.
Adjusting for Zero Rated EC Business Sales in Xero
(Only for accounts using the new Tax Jurisdiction Grouping setting)
Once you have selected the period you want to view in Link My Books and have a list of your EC Sales you will need to manually adjust for these transactions in Xero as currently Link My Books only displays the data and these zero rated transactions will have used the Zero Rated Income tax rate.
So for example if you had an EC Sale for £9.96 to a VAT registered business customer in Ireland showing on your list in Link My Books then you could create an invoice in Xero as follows:
Use the customer VAT number as the contact for the invoice, IE123456LH in our example here.
Use a reference that you and your accountant will understand later on, like "EC Sales IE123456LH June 2019"
Select that the amounts on the invoice are tax inclusive.
Add 3 line items as shown in the image above.
Enter the transaction value as a positive number on the first line and a negative amount on the second line.
Select the sales account you use for Amazon sales.
Set the tax rate to "Zero Rated EC Goods Income" for the first line and for the second line set the tax rate to the same rate you use for Zero Rated business sales during setup, "Zero Rated Income" usually.*
*For the tax rate, be careful, if you are unsure reach out to support and we can check for you.
The result of the above invoice is that the tax rate for the sale changes from Zero Rated Income to Zero Rated EC Goods Income (or from whatever rate you select to Zero Rated EC Goods Income).
This means that the amount will be included on your EC Sales list report in Xero.
What if I am using the Country Grouping setting?
If you are happy on the Country Grouping setting then please note that you will need to make manual adjustments in Xero to remove change the tax rate on these sales to Zero Rated EC Goods Income.
When you make these manual adjustments the information will carry through onto your EC Sales List report in Xero and can then be submitted to HMRC as required.
For more information on how to access and use The EC Sales and Inventory Movement page, please see the article here. This article will focus on how to deal with EC Sales in Xero not how to use the page in Link My Books.
Adjusting for Zero Rated EC Business Sales in Xero
(Only for accounts using the old Country Groups setting)
Once you have selected the period you want to view in Link My Books and have a list of your EC Sales you will need to manually adjust for these transactions in Xero as currently Link My Books only displays the data and does not treat these zero rated transactions separately to your normal vatable sales.
So for example if you had an EC Sale for £9.96 to a VAT registered business customer in Ireland showing on your list in Link My Books then you could create an invoice in Xero as follows:
Use the customer VAT number as the contact for the invoice, IE123456LH in our example here.
Use a reference that you and your accountant will understand later on, like "EC Sales IE123456LH June 2019"
Select that the amounts on the invoice are tax inclusive.
Add 3 line items as shown in the image above.
Enter the transaction value as a positive number on the first line and a negative amount on the second line.
Select the sales account you use for Amazon sales.
Set the tax rate to "Zero Rated EC Goods Income" for the first line and for the second line set the tax rate to the same rate you use for sales to that country, "20% VAT on Income" in our example.*
*For the tax rate, be careful, as this may depend on what country the customer is located in if you hold more than 1 VAT registration in the EU.
For example if you are VAT registered in the UK and Germany, an EC Sale to a German business customer, that was zero rated by Amazon, would need to have the tax rate that you set for sales to Germany in Link My Books in place of 20% VAT on Income in our example above. This will typically be the rate you set for "Non UK Vatable Sales" during setup.
To make this simpler ask yourself, if this sale was to a German customer what tax rate would I be applying to the sale normally? Then set that tax rate for the second line item.
The result of the above invoice is that the tax rate for the sale changes from 20% VAT on Income to Zero Rated EC Goods Income (or from whatever rate you select to Zero Rated EC Goods Income).
This means that the amount will be included on your EC Sales list report in Xero and if you have previously declared the sale as 20% VAT on Income, now it is Zero Rated EC Goods Income and the VAT amount will be reduced on your UK VAT return meaning you wont pay VAT on these zero rated sales.
This topic is complex so it is highly suggested that you talk it through with your accountant before taking any action in Xero. If you and/or your accountant has any questions on this then please get in touch with support.
Remember that we are not tax advisors here at Link My Books and can only help you technically set things up and not advise on what taxes to set etc.