Etsy is an amazing marketplace for businesses who sell craft supplies, vintage goods or who make their products themselves.
If you are one of the estimated 3.2 million active sellers on Etsy and you’re wondering if you should be accounting for VAT on their fees, then this is the post for you.
In this post, we will break down exactly what you need to know about Etsy Fees and VAT as well as show you where to check in your Etsy account to be double sure if you are paying VAT on your fees or not.
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.
If you are based in the UK or the EU (excluding Ireland) and you have provided your VAT number to Etsy then Etsy are NOT charging VAT on their fees.
If you are based in the UK or the EU (excluding Ireland) and you have NOT provided your VAT number to Etsy then Etsy ARE charging VAT on their fees.
If you are based in Ireland then Etsy ARE charging VAT on their fees.
More Detailed Answer
If your business is established in the UK or the EU then Etsy invoices its fees to you via their Etsy Ireland UC legal entity.
So, firstly, if your business is established in Ireland then due to Etsy billing its fees from their Irish legal entity you will be charged 23% Irish VAT on them. This is regardless of if you have provided Etsy with your IE VAT number.
If, however, your business is established in the UK or the EU (excluding Ireland) different rules apply depending on whether or not you have provided Etsy with your VAT number.
This is because of some rules called “reverse charge VAT rules”.
If you have not provided Etsy with your VAT number then they are forced to treat you as a “consumer” under VAT regulations, meaning any supplies of services to you must have VAT applied to them.
If however, you have provided Etsy with your VAT number then they will treat you as a “business” customer and as such will not apply any VAT to their fees and instead, they will apply the reverse charge rules.
What does Reverse Charge mean?
Good question. So when VAT is reverse charged it essentially means that the supplier does not charge any VAT, the customer does not pay any VAT but both parties account for it.
In Xero and QuickBooks there are specific tax rates for this type of expense:
Xero - Reverse Charge Expenses (20%)
QuickBooks - 20.0% RC SG (Reverse Charge Services 20%)
How can I double check the tax rate Etsy are charging me?
Inside your Etsy Admin you can check if you have previously entered your VAT number and if Etsy has verified it using the below steps:
To add or update your VAT ID in Shop Manager:
On Etsy.com, click Shop Manager.
Click VAT ID.
Enter your VAT ID.
VAT IDs have specific formats and European VAT IDs can be checked on the European Commission website for validity.
You could also download one of your monthly invoices from Etsy which would show clearly if any VAT has been charged.
You can access your invoices by visiting Shop Manager > Finances > Payment account. Once there, click on the month to get an invoice for that period. The download link will appear above the breakdown of your activity for the month.
How do I set the correct tax rate in Link My Books?
If you’re using Link My Books to automate your Etsy bookkeeping then you will during your initial setup be prompted to enter a tax rate for your Etsy fees:
In Link My Books our default tax rate for Etsy Fees is Reverse Charged Expenses as most sellers who are VAT registered have entered their VAT number on Etsy but it is always wise to check as if you are paying VAT on your Etsy fees then you should change this tax rate in Link My Books accordingly ensure that you are reclaiming all the VAT you are entitled to.
If you have any questions about this then please feel free to reach out to the Link My Books support team ([email protected]) who would be happy to help ensure you set the correct tax rate.