Quick Takeaway Points
If you are VAT registered you should enter your product costs as the net amounts, excluding any VAT.
If you are not VAT registered you should enter your product costs as the gross amounts, including any VAT.
How COGS works
With COGS tracking turned on Link My Books will generate a list of all the products sold as part of each payout from a sales channel.
We use your landed product costs, which you input on the product costs page, to calculate the monetary value of each of the products sold during a given settlement.
Should I enter product costs with or without VAT?
Your landing cost will differ depending on if you are VAT registered or not.
For example, if you don't hold a VAT registration and you purchased an item for £120 and you have accounted for that purchase in Xero or QuickBooks to your chosen Inventory Asset account, the full £120 is a cost to the business.
Using the same example, if you are VAT registered, then £100 is a cost to the business, and £20 is reclaimed from HMRC because you will claim back the VAT as part of your VAT return.
If you are not VAT registered, you need to be accounting for the full cost price including VAT in the landing costs
If you are VAT registered, you need to update that cost to show the net values (excluding VAT).
For further guidance on COGS, see the How to use the Cost of Goods Sold and COGS FAQ'S article.
Our Accounting for pre and post VAT registration dates article may also be useful.
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].