Shopify allows sellers to use a whole host of payment gateways to sell their products via the Shopify cart, but that can cause a total pain when it comes to accounting for your sales. So if you're a Shopify seller and you're using Shopify Payments or any of the other available payment gateways, how do you connect Shopify to Xero? Well in this post we'll discuss just that...
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.
Shopify Payments is the simplest way to accept payments online. It eliminates the hassle of setting up a merchant account with a third-party payment provider and then entering your account credentials in Shopify.
If your store has Shopify Payments enabled, then you receive payments through Shopify Payouts when a customer pays using Shopify Payments and specific accelerated checkouts.
These payouts are either daily, weekly or monthly depending on how you have chosen to receive them in your Shopify Payouts settings.
Payouts are the sum of your sales minus any refunds minus Shopify fees so it’s important you account for their contents correctly. More on that later.
Other Payment Gateways (PayPal, Klarna, etc)
If your Shopify store accepts payments from other payment providers such as PayPal, Klarna, Amazon Pay, etc. then those sales with build up a balance in your third party provider account.
Take PayPal as an example, when a customer pays for their order via PayPal those funds are deposited into your PayPal account. PayPal charges a fee for processing the payment and that is deducted from your PayPal balance. You then have the option to withdraw those funds from PayPal, whenever you like effectively.
The same goes for other payment gateways, the funds are deposited into your gateway account, they remove any fees and then they deposit the net amount into your bank account periodically.
Get Shopify and Xero connected
With Link My Books you can connect your Shopify account and your Xero account and have them talking to each other in minutes.
Link My Books hooks up directly to your Shopify account and automatically pulls in each Shopify Payments Payout, breaking it down into the following transaction groups:
- Shopify Sales
- Shopify Shipping
- Shopify Sales Tax (US Sales only)
- Shopify Refunds
- Shopify Shipping Refunds
- Shopify Fees
- Shopify Balances
🇬🇧 For UK businesses, sales and Refunds are further broken down into the following tax groups:
- Shipped to UK - Typically 20% VAT
- Shipped outside UK - Typically Zero Rated Income
🇦🇺 For Australian businesses, sales and Refunds are further broken down into the following tax groups:
- Shipped to Australia - Typically GST on Income
- Shipped outside Australia - Typically GST Free Income
🇿🇦 For South African businesses, sales and Refunds are further broken down into the following tax groups:
- Shipped to South Africa - Typically Standard Rate Sales
- Shipped outside South Africa - Typically Zero Rate (Only Exported Goods)
Why do Link My Books break down sales and refunds into these groups?
The answer is simple really...
If you don't then you could end up overpaying VAT/GST...and many sellers do just that before they realise.
If you don't separate your domestic and export sales revenue into these groups then you could end up paying VAT or GST on sales that have been exported and do not have any VAT/GST on them. The customer didn't pay any tax on the sale, so neither should you.
Luckily for you Link My Books does all of this automatically, checking each and every order and refund to ensure the correct tax treatment applies. One less headache for you. 😎
Can’t I just account for the deposits from Shopify as sales?
The short answer is no.
If you simply input each deposit from Shopify as revenue that would be wrong as they are made up of sales, refunds and fees as discussed above. So that wouldn't work.
If instead, you fed in individual orders then that would work, but only if you were willing to manually set the tax rate for each order after checking if it was a domestic sale or an export. For most sellers, this is an easy no.
Really the only solution is to use something like Link My Books to automate the whole lot.
And for most sellers, it makes complete sense to do so.
It's great value for money in terms of time saved.
But also by keeping your figures accurate and your tax return correct, you might actually end up better off even after you've paid your fees for Link My Books.
This is actually really common. Lots of sellers end up realising they have been overpaying VAT, GST or Income Tax by not keeping accurate records and as such Link My Books ends up saving them more in overpaid tax reductions than the cost of their subscription. Crazy right?
If you want to connect Shopify to Xero then try Link My Books for free today.