***DISCLAIMER*** 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…
PAN EU VAT Registrations
If you are storing inventory in any of Amazon's fulfilment centres outside the UK, you will likely need to hold a VAT registration in those countries. For sellers on Amazon's PAN EU program this means holding VAT registrations in:
- UK (home country)
- Germany
- France
- Spain
- Italy
- Czech Republic
- Poland
Most sellers on the PAN EU program will be using a third party provider to calculate and file their EU VAT returns, meaning they only need to focus on getting their UK VAT return in order inside their accounting software.
These third parties are companies such as Avalara, Avask or even Amazon's own - VAT Services on Amazon, which actually uses Avalara in the background but is built in to seller central for easy management.
How to account for EU VAT in Xero or QuickBooks
Xero and QuickBooks are not really designed to be used to calculate and file multiple VAT returns for different countries and, as mentioned above, most sellers are using third parties to calculate and file their EU VAT returns.
Due to this we have designed Link My Books to work well in conjunction with a third party EU VAT provider, ensuring that the UK VAT return is correct with all the figures being put in the correct boxes and leaving the EU VAT calculation and filing to your third party provider.
How does Link My Books deal with my EU taxable sales?
When using our Tax Jurisdiction Grouping method (default for users with European region Amazon seller accounts on the UK version of Xero or QuickBooks) your sales income is separated into the following groups:
- UK Tax Jurisdiction Sales (Pre-Brexit)
- EU Tax Jurisdiction Sales - Dispatched UK (Pre-Brexit)
- EU Tax Jurisdiction Sales - Dispatched EU (Pre-Brexit)
- Zero Rated EC Business Sales (Pre-Brexit)
- Sales Exported Outside EU - Dispatched UK (Pre-Brexit)
- Sales Exported Outside EU - Dispatched EU (Pre-Brexit)
- Sales shipped to GB (Post-Brexit)
- Sales shipped outside UK - dispatched from GB (Post-Brexit)
- Sales shipped outside UK - dispatched from outside GB (Post-Brexit)
*Pre-Brexit refers to transactions with a tax point before 01/01/2021.
*Post-Brexit refers to transactions with a tax point after 31/12/2020.
What tax rate should I use for each group?
UK Tax Jurisdiction Sales:
Sales that are delivered to UK customers,
OR
Sales that are delivered to EU customers in countries where you DON’T hold a VAT registration AND are dispatched from the UK.
This group would usually incur the following tax rate:
Xero - 20% (VAT on Income)
QuickBooks - 20.0% S (Standard 20%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 20% to Box 1, Net Sale to Box 6
EU Tax Jurisdiction Sales - Dispatched from the UK
Sales that are delivered to EU customers in countries where you DO hold a VAT registration AND are dispatched from the UK.
This group would usually incur the following tax rate:
Xero - Zero Rated Income
QuickBooks - 0.0% Z (Zero-Rated 0%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 0% to Box 1, Net Sale to Box 6
EU Tax Jurisdiction Sales - Dispatched from the EU
Sales that are delivered to EU customers in countries where you DO hold a VAT registration AND are dispatched from the EU (not UK).
This group would usually incur the following tax rate:
Xero - No VAT
QuickBooks - No VAT (No VAT applicable 0%)
Using the above tax rates means that the following will not be recored on the UK VAT return.
Zero Rated EC Business Sales*
Sales that are delivered to EU business customers that are VAT registered in other EC states AND are dispatched from the UK.
This group would usually incur the following tax rate:
Xero - Zero Rated Income
QuickBooks - 0.0% Z (Zero-Rated 0%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 0% to Box 1, Net Sale to Box 6
* For these sales you will also need to take a look at our article on EC Sales.
Sales Exported Outside the EU - Dispatched from the UK
Sales that are delivered to customers outside the EU AND are dispatched from the UK.
Sales Exported Outside the EU - Dispatched from the UK would usually incur the following tax rate:
Xero - Zero Rated Income
QuickBooks - 0.0% Z (Zero-Rated 0%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 0% to Box 1, Net Sale to Box 6
Sales Exported Outside the EU - Dispatched from the EU
Sales that are delivered to customers outside the EU AND are dispatched from the EU (not UK).
This group would usually incur the following tax rate:
Xero - No VAT
QuickBooks - No VAT (No VAT applicable 0%)
Using the above tax rates means that the following will not be recored on the UK VAT return.
Sales shipped to GB (Post-Brexit)
Sales which have been delivered to customers located in Great Britain with a tax point after 31/12/2020.
This group is further split into:
- Sales where the Seller is responsible for collecting and remitting UK VAT;
- Sales where the Marketplace is responsible for collecting and remitting UK VAT;
*Seller refers to the business selling the goods.
*Marketplace refers to the online marketplace such as Amazon or eBay.
Sales where the seller is responsible for collecting and remitting VAT would usually incur the following tax rate:
Xero - 20% (VAT on Income)
QuickBooks - 20.0% S (Standard 20%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 20% to Box 1, Net Sale to Box 6
Sales where the marketplace is responsible for collecting and remitting VAT would usually incur the following tax rate:
Xero - Zero Rated Income
QuickBooks - 0.0% Z (Zero-Rated 0%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 0% to Box 1, Net Sale to Box 6
Sales shipped outside UK - dispatched from GB (Post-Brexit)
Sales which have been delivered to customers located outside the UK which have been dispatched from inventory held in GB with a tax point after 31/12/2020.
Sales Exported Outside the UK Post-Brexit - Dispatched from GB would usually incur the following tax rate:
Xero - Zero Rated Income
QuickBooks - 0.0% Z (Zero-Rated 0%)
Using the above tax rates means that the following will be recored on the UK VAT return:
VAT at 0% to Box 1, Net Sale to Box 6
Sales shipped outside UK - dispatched from outside GB (Post-Brexit)
Sales which have been delivered to customers located outside the UK which have been dispatched from inventory held outside GB with a tax point after 31/12/2020.
This group would usually incur the following tax rate:
Xero - No VAT
QuickBooks - No VAT (No VAT applicable 0%)
Using the above tax rates means that the following will not be recored on the UK VAT return.
Can I track my EU VAT liabilities in Xero or QuickBooks by setting up different VAT rates for each country I hold VAT registrations in?
A lot of sellers ask this question and my answer is always the same - I would not recommend it.
As an ex-multimillion pound Amazon PAN EU seller myself (I sold my FBA business back in 2018) I know I even thought about this myself too.
The reason why I recommend against this is because, for example, let's say you are a PAN EU seller and hold all 7 required VAT registrations (UK, DE, FR, IT, ES, CZ, PL).
Let's take an example sale that is as follows:
Marketplace: Amazon.de
Value: €119
Dispatched from: UK
Delivered to: Germany
How would this look in Link My Books?
So the sale is being delivered to a customer in an EU country where you hold a VAT registration, Germany, and it has been dispatched from the UK.
Sales that are delivered to EU customers in countries where you DO hold a VAT registration AND that are dispatched from the UK would be grouped in Link My Books into the "EU Tax Jurisdiction Sales - Dispatched UK" group.
Our default suggested tax rate for this group is:
Xero - Zero Rated Income
QuickBooks - 0.0% Z (Zero-Rated 0%)
Using the above tax rates means that he following will be recored on the VAT return:
VAT at 0% to Box 1, Sale to Box 6
How this would look if you used separate VAT rates for each country:
If you were to instead, use a separate tax rate - let's say "German 19% VAT" as the tax rate then you would end up with a problem.
Using a separate tax rate for these sales would mean that the 19% VAT amount would appear in Box 1 on the UK VAT return and the net amount of €100 would appear in box 6.
You would likely need use manual journals to remove the German VAT amount from the UK return otherwise you would end up paying this German VAT amount to the HMRC too, thus paying the VAT on those sales twice.
How do I account for the payments of EU VAT?
When you are informed by your third party EU VAT provider what your other VAT liabilities are for each country, you would simply account for those as a transactions to your Amazon Sales accounts. This "backs out" the VAT from the sales account leaving only the net figure counting towards your turnover figures.
The way this works using the same example order above is that we would group the sale to the "EU Tax Jurisdiction Sales - Dispatched UK" group.
We'd take the full gross amount of €119 and allocate that to your chosen sales account and tax rate (if you use our defaults that would be "LMB1 - Amazon Sales" for the account and "Zero Rated Income" for the tax rate).
Then when your third party informs you that your VAT liability for Germany is €19, you would pay the €19 and create a transaction in Xero or QuickBooks with the same sales account as the original sale was allocated to, which in our example was "LMB1 - Amazon Sales".
So what has then happened is:
€119 added to LMB1 - Amazon Sales,
€19 German VAT paid and deducted from LMB1 - Amazon Sales,
Leaving just the net amount of €100 in the LMB1 - Amazon Sales account.
In Xero this is how the transaction could look on your bank reconciliation page:
Who: Make a contact in Xero for each of your VAT registrations
What: Use the account that you use for Amazon Sales
Why: A short description so that you know what it is
Tax Rate: No VAT
In QuickBooks this is how the transaction could look on your bank reconciliation page:
Type: Expense
Customer: Make a contact in QuickBooks for each of your VAT registrations
Category: Use the account that you use for Amazon Sales
Tax Code: No VAT (Purchases)
Memo: A short description so that you know what it is
Summary
Dealing with PAN EU VAT as part of your Link My Books setup with Xero or QuickBooks is absolutely possible.
The above process is probably not the only way to do this and may not even be the best way either, but in my experience I have found it to be both accurate and efficient.
We would recommend that you run all of this by your accountant to ensure that they are happy with it and should you or they have any questions please reach out to us at support.
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