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Validation errors: The TaxType code 'OUTPUT2' cannot be used with account code...

What to do if you see this error:

Daniel Little avatar
Written by Daniel Little
Updated today

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.

A modal dialog box with a light grey background, indicating an error.  At the top, there is a large red circle with a white 'X' inside it, signifying an error or a problem.  Below the icon, in bold black text, it says "Oops!".  Underneath that, the main error message is displayed in dark grey text: "A validation exception occurred (The TaxType code 'INPUT2' cannot be used with account code 'LMB10') Validation errors: The TaxType code 'INPUT2' cannot be used with account code 'LMB10'."  At the bottom center of the dialog box, there is a blue button labeled "OK".

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.

A screenshot of the "Chart of accounts" page within an "Advanced accounting" section.  At the top, the breadcrumb trail "Advanced accounting > Chart of accounts" is visible. Below that, the main heading is "Chart of accounts". On the right, there's a "Hide Help" link and an 'x' icon.  Below the heading, there's a section with introductory text and a graphic. The text reads: "Categorise every transaction in Xero with our full Chart of accounts". Below that: "Financial reports draw on each account to show how your business is performing". And finally: "Learn more about customizing the chart of accounts".  Below this introductory section, there are several action buttons: "Add Account", "Add Bank Account", "Print PDF", "Import", and "Export".  Further down, there's a tabbed navigation with "All Accounts", "Assets", "Liabilities", "Equity", "Expenses", "Revenue", and "Archive". "All Accounts" is currently selected. There's also a "What's this?" link.  Below the tabs, there are more action buttons: "Delete", "Archive", "Change Tax Rate". Next to them, "No accounts selected" is displayed, and a search bar with "LMB" and "Search" buttons.  The main part of the screen is a table displaying the chart of accounts. The columns are: a checkbox column, "Code", "Name", "Type", "Tax Rate", and "YTD".  The visible rows in the table are: * **LMB1**: "Amazon Sales" (Income from Amazon), "Type: Revenue", "Tax Rate: 20% (VAT on Income)", "YTD: 0.00". * **LMB10**: "Amazon Refunds" (Amazon Refunds), "Type: Revenue", "Tax Rate: 20% (VAT on Income)", "YTD: 0.00". * **LMB2**: "Amazon FBA Inventory Reimbursement" (Compensation received in reimbursement for damaged inventory held in Amazon warehouses.), "Type: Other Income", "Tax Rate: 20% (VAT on Income)", "YTD: 0.00". * **LMB20**: "Amazon Inventory" (Amazon Inventory), "Type: Current Asset", "Tax Rate: No VAT", "YTD: 0.00".  A red rectangle highlights the "Type" column, specifically encompassing the values "Revenue", "Revenue", "Other Income", and "Current Asset".

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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