Etsy is an amazing marketplace for businesses that sell craft supplies and 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 VAT on Etsy fees, as well as show you where to check in your Etsy account 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 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.
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 whether you provide Etsy with your IE VAT number.
Where 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.
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%)
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:
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.
Link My Books allows Etsy Sellers to automate their Etsy bookkeeping, and it will prompt them during the initial setup to enter a tax rate for their 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. Still, 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 to ensure that you are reclaiming all the VAT you are entitled to.
If you have any questions about setting the correct tax rate in Link My Books, don't hesitate to get in touch with our support team (firstname.lastname@example.org), who would be happy to assist you.