When sending a settlement to Xero if you see this error message then it means that you have selected an output based tax rate for an input based account or maybe vice versa.

Which types of account are there?

In Xero there are 5 different Account Class types. Each one can only be assigned certain types of tax rates. The table below shows the 5 account class types:

ASSET

EQUITY

EXPENSE

LIABILITY

REVENUE

If you are using the LMB default accounts then the account class types are shown below:

Account

Account Class Type

LMB1 Amazon Sales

REVENUE

LMB2 Amazon FBA Inventory Reimbursement

REVENUE

LMB3 Amazon Seller Fees

EXPENSE

LMB4 Amazon FBA Fees

EXPENSE

LMB5 Amazon Storage Fees

EXPENSE

LMB6 Amazon Advertising Costs

EXPENSE

LMB7 Amazon Sales Tax

LIABILITY

LMB8 Amazon Loans

LIABILITY

LMB9 Amazon Reserved Balances

ASSET

LMB10 Amazon Refunds

REVENUE

LMB20 Amazon Inventory

ASSET

LMB21 Amazon Cost of Goods Sold

EXPENSE

LMB30 Shopify Sales

REVENUE

LMB31 Shopify Refunds

REVENUE

LMB32 Shopify Shipping

REVENUE

LMB33 Shopify Shipping Refunds

REVENUE

LMB34 Shopify Fees

EXPENSE

LMB35 Shopify Split Month Rollovers

ASSET

LMB36 Shopify Balances

LIABILITY

LMB40 eBay Sales

REVENUE

LMB41 eBay Refunds

REVENUE

LMB42 eBay Shipping

REVENUE

LMB43 eBay Shipping Refunds

REVENUE

LMB44 eBay Fees

EXPENSE

LMB45 eBay Dispute Reserved Balances

LIABILITY

LMB46 eBay Split Month Rollovers

ASSET

LMB47 eBay Sales Tax

LIABILITY

LMB50 Etsy Sales

REVENUE

LMB51 Etsy Refunds

REVENUE

LMB52 Etsy Shipping

REVENUE

LMB53 Etsy Shipping Refunds

REVENUE

LMB54 Etsy Fees

EXPENSE

LMB55 Etsy Reserved Balances

LIABILITY

LMB56 Etsy Split Month Rollovers

ASSET

If you're using your own chart of accounts then you can check the account type inside of Xero under Chart of Accounts.

Which tax rates can I use for each account class type?

By default Xero only allows you to use certain tax types with certain account class types. The table below shows this:

UK Tax Rates

Xero Tax Code

Tax Type

20% (VAT on Income)

OUTPUT2

REVENUE

5% (VAT on Income)

RROUTPUT

REVENUE

Zero Rated Income

ZERORATEDINPUT

REVENUE

20% (VAT on Expenses)

INPUT2

EXPENSE

5% (VAT on Expenses)

RRINPUT

EXPENSE

Zero Rated Expenses

ZERORATEDOUTPUT

EXPENSE

Reverse Charge Expenses (20%)

REVERSECHARGES

EXPENSE

No VAT

NONE

EXPENSE & REVENUE

How do I fix the issue?

This error occurs when your chosen account does not allow your chosen tax rate.

Taking our screenshot as an example, this user has selected the tax rate INPUT2, which we know now is 20% (VAT on Expenses).

They have assigned this to the account LMB10, which is Amazon Refunds.

The LMB10 Amazon Refunds account is a REVENUE type account so an EXPENSE type tax rate is not valid.

So to resolve this if we change the tax rate to a revenue type such as 20% (VAT on Income) then Xero will accept it.

IMPORTANT - Only change tax rates in the Accounts & Taxes Wizard and NEVER on the Accounts & Taxes Mapping page.



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