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How to deal with EU VAT in Xero or QuickBooks with Link My Books
How to deal with EU VAT in Xero or QuickBooks with Link My Books

Accounting for VAT in multiple countries with Link My Books

Daniel Little avatar
Written by Daniel Little
Updated over a week ago

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.

πŸ’‘ Good to know

This article is written from the perspective of a UK-based business.

PAN EU VAT Registrations

If you are storing inventory in any of Amazon's fulfilment centres outside the UK, you will likely need to hold a VAT registration in those countries. For sellers on Amazon's PAN EU program, this means holding VAT registrations in:

  • UK (home country)

  • Germany

  • France

  • Spain

  • Italy

  • Czech Republic

  • Poland

Most sellers with EU VAT registrations will be using a third-party provider to calculate and file their EU VAT returns, meaning they only need to focus on getting their UK VAT returns in order inside their accounting software.

These third parties are companies such as Avalara, Taxually or even Amazon's own - VAT Services on Amazon.

How to account for EU VAT in Xero or QuickBooks

Xero and QuickBooks are not designed to be used to calculate and file multiple VAT returns for different countries and, as mentioned above, most sellers are using third parties to calculate and file their EU VAT returns.

Due to this, we have designed Link My Books to work well in conjunction with a third party EU VAT provider, ensuring that the UK VAT return is correct with all the figures being put in the correct boxes and leaving the EU VAT calculation and filing to your third party provider.

How does Link My Books deal with my EU taxable sales?

Link My Books separates all sales revenue income into the following 6 groups:

  1. Standard Rated Goods Shipped to UK - Seller Responsible for VAT

  2. Reduced Rated Goods Shipped to UK - Seller Responsible for VAT

  3. Zero Rated Goods Shipped to UK - Seller Responsible for VAT

  4. Sales shipped to UK - Marketplace Responsible for VAT

  5. Sales shipped outside UK - Dispatched from GB

  6. Sales shipped outside UK - Dispatched from outside GB

What tax rate should I use for each group?

Standard Rated Goods Shipped to UK - Seller Responsible for VAT

Sales which have been delivered to customers located in the UK, where the product was standard rated for UK VAT.

This group would usually incur the following tax rate:

Xero - 20% (VAT on Income)

QuickBooks - 20.0% S (Standard 20%)

Using the above tax rates means that the following will be recorded on the UK VAT return:

VAT at 20% to Box 1, Net Sale to Box 6

Reduced Rated Goods Shipped to UK - Seller Responsible for VAT

Sales which have been delivered to customers located in the UK, where the product was reduced rated for UK VAT.

This group would usually incur the following tax rate:

Xero - 5% (VAT on Income)

QuickBooks - 5.0% R (Reduced 5%)

Using the above tax rates means that the following will be recorded on the UK VAT return:

VAT at 5% to Box 1, Net Sale to Box 6

Zero Rated Goods Shipped to UK - Seller Responsible for VAT

Sales which have been delivered to customers located in the UK, where the product was zero rated for UK VAT.

This group would usually incur the following tax rate:

Xero - Zero Rated Income

QuickBooks - 0.0% Z (Zero-Rated 0%)

Using the above tax rates means that the following will be recorded on the UK VAT return:

VAT at 0% to Box 1, Net Sale to Box 6

Sales shipped to UK - Marketplace Responsible for VAT

Sales which have been delivered to customers located in the UK, where Amazon is responsible for collecting and remitting the VAT to HMRC.

This group would usually incur the following tax rate:

Xero - Zero Rated Income

QuickBooks - 0.0% Z (Zero-Rated 0%)

Using the above tax rates means that the following will be recorded on the UK VAT return:

VAT at 0% to Box 1, Net Sale to Box 6

Sales shipped outside UK - dispatched from GB

Sales which have been delivered to customers located outside the UK which have been dispatched from inventory held in GB.

This group would usually incur the following tax rate:

Xero - Zero Rated Income

QuickBooks - 0.0% Z (Zero-Rated 0%)

Using the above tax rates means that the following will be recorded on the UK VAT return:

VAT at 0% to Box 1, Net Sale to Box 6

Sales shipped outside UK - dispatched from outside GB

Sales which have been delivered to customers located outside the UK which have been dispatched from inventory held outside GB.

This group would usually incur the following tax rate:

Xero - No VAT

QuickBooks - No VAT (No VAT applicable 0%)

Using the above tax rates means that the following will not be recorded on the UK VAT return.

Can I track my EU VAT liabilities in Xero or QuickBooks by setting up different VAT rates for each country I hold VAT registrations in?

A lot of sellers ask this question and my answer is always the same - I would not recommend it.

As an ex-multimillion pound Amazon PAN EU seller myself (I sold my FBA business back in 2018) I even thought about this myself too.

The reason why I recommend against this is that, for example, let's say you are a PAN EU seller and hold all 7 required VAT registrations (UK, DE, FR, IT, ES, CZ, PL).

Let's take an example sale that is as follows:

Marketplace: Amazon.de

Value: €119

Dispatched from: UK

Delivered to: Germany

How would this look in Link My Books?

So the sale is being delivered to a customer in an EU country where you hold a VAT registration, Germany, and it has been dispatched from a warehouse outside GB.

This would be grouped in Link My Books into the "Sales shipped outside UK - dispatched outside GB" group.

Our default suggested tax rate for this group is:

Xero - No VAT

QuickBooks - No VAT (No VAT applicable 0%)

Using the above tax rates means that the following will not be recorded on the UK VAT return.

How this would look if you used separate VAT rates for each country:

If you were to instead, use a separate tax rate - let's say "German 19% VAT" as the tax rate then you would end up with a problem.

Using a separate tax rate for these sales would mean that the 19% VAT amount would appear in Box 1 on the UK VAT return and the net amount of €100 would appear in box 6.

You would likely need to use manual journals to remove the German VAT amount from the UK return otherwise you would end up paying this German VAT amount to the HMRC too, thus paying the VAT on those sales twice.

How to account for the payments of EU VAT?

When you are informed by your third-party EU VAT provider what your other VAT liabilities are for each country, you would simply account for those as a transaction to your Amazon Sales accounts.

This "backs out" the VAT from the sales account leaving only the net figure counting towards your turnover figures.

The way this works using the same example order above is that we would group the sale to the "Sales shipped outside UK - dispatched outside GB" group.

We'd take the full gross amount of €119 and allocate that to your chosen sales account and tax rate (if you use our defaults that would be "LMB1 - Amazon Sales" for the account and "No VAT" for the tax rate).

Then when your third party informs you that your VAT liability for Germany is €19, you would pay the €19 and create a transaction in Xero or QuickBooks with the same sales account as the original sale was allocated to, which in our example was "LMB1 - Amazon Sales".

So what has then happened is:

€119 added to LMB1 - Amazon Sales,

€19 German VAT paid and deducted from LMB1 - Amazon Sales,

Leaving just the net amount of €100 in the LMB1 - Amazon Sales account.

In Xero this is how the transaction could look on your bank reconciliation page:

Who: Make a contact in Xero for each of your VAT registrations

What: Use the account that you use for Amazon Sales

Why: A short description so that you know what it is

Tax Rate: No VAT

In QuickBooks this is how the transaction could look on your bank reconciliation page:

Type: Expense

Customer: Make a contact in QuickBooks for each of your VAT registrations

Category: Use the account that you use for Amazon Sales

Tax Code: No VAT (Purchases)

Memo: A short description so that you know what it is

Summary

Dealing with PAN EU VAT as part of your Link My Books setup with Xero or QuickBooks is absolutely possible.

The above process is probably not the only way to do this and may not even be the best way either, but in my experience, I have found it to be both accurate and efficient.

We would recommend that you run all of this by your accountant to ensure that they are happy with it and should you or they have any questions please reach out to us at support.

If you have any questions about this article or feedback on how we could make it better please reach out to the support team via the blue chat icon on the bottom right of the page or via email to [email protected].

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