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Community > Accounting >

Reporting VAT for Distance Selling Sales in Box 8

Started by J.J. Warwick -   in Accounting

A word of warning to anyone who sells goods from the UK to consumers in the EU.

Xero is incapable of correctly reporting the VAT in your VAT return.

They work on the assumption that all EU sales are 0% sales to EU businesses, and even gave me incorrect advice twice on how it should be reported.

HMRC state that all "distance selling sales" (i.e. online/mail order) to the EU should be reported in Box 8 - but Xero can't do that, as it won't let you add a "20% VAT for Sales to the EU" Tax Rate - you can't change the rate from 0%.

As it stands, the product is unfit for purpose for anyone who sells outside the UK.
Hi JJW

You are correct, but there is a work around.

Create a "Sales to EU" in tracking and pull the report at the Return period end and manually alter Box 8
 

Campbell Grant  

Why should I use a work around I'm paying for a service that doesn't correctly report VAT for any UK business that sells to consumers in the EU - I can't be the only person for whom this is a problem.

You could just stop forcing 0% VAT on EU sales and the problem is solved.

How long will this take to fix.
 

J.J. Warwick  

Hi JJW

I agree with you, but my stance at the moment is that I am not going to throw the baby out with the bath water!! I have phoned Milton Keynes about your observation and they are very keen to resolve the matter.

This is a problem and relates to sales to non-VAT registered customers in other EU countries. Sales to vat registered customers seems to work ok.

BTW, many thanks for raising this matter.

Cam
 

Campbell Grant  

I'm not disputing this, but that's not the point.

The fact is twice i was given incorrect information from support in relation to this, and they didn't seem to understand what the problem is, and seemed to consider it a feature request rather than an issue with the platform in that it's incapable of correctly reporting VAT.
 

J.J. Warwick  

Hi JJW

I totally agree with your frustration!! I find it hard to comprehend the lack of understanding in some IT tech support staff between what constitutes a system error, and a feature request!

I mentioned this to Milton Keynes and said that if tech support gives out dismissive BS, then Xero will lose some customers.

Cam
 

Campbell Grant  

Hi JJW

I have contacted support linking to this/your post. I have reiterated the importance for this matter to be resolved.

I have received the following response: -

"Thank you for the ticket and providing feedback in the Community. I've sent out inquiries on this topic and I'll follow-up with you as soon as I have more information."

Cam



 

Campbell Grant  

I have received a reply from Tech Support: -

"Hi Campbell

The EU VAT functionality in Xero works correctly for the majority of businesses.

For example if you are selling services to an EU VAT Registered business then you can use our Zero Rated EC Services VAT Rate which populates box 6 on the VAT return as required.

If you are selling goods to an EU VAT Registered business then you can use our Zero Rated EC Goods Income tax rate which populates boxes 6 and 8 on the VAT return as required.

If you are selling to a non VAT Registered business then you can record the sale using a standard rate of VAT (20% VAT on Income) to populate box 1 and 6 on the VAT Return.

The only issue that can occur with this is if you have a non registered EU customer who you have sold goods to, for these one syo would need to use the standard rate of VAT as above and then manually adjust the box 8 figure and manually file the VAT Return with HMRC.

I have also included a link below to our Help centre page that explains which tax rates populate which boxes on the VAT Returns for you.

Xero Help Centre: How does the VAT Return work in Xero?

Best regards

Mike"

 

Campbell Grant  

I'm aware of how it works and of your work around.

Shouldn't your product work properly, rather than me having to use a work around ?

Your system should be able to correctly calculate VAT for ALL EU sales - not just the ones you decide it should calculate.

It would be very easy for you to fix this - just let people create a 20% VAT rate for EU good sales - and everything would work as it should - however, 2 weeks after I reported this, you continue to dismiss this as something that that's a feature request - it's not.

The problem here is that you have a product that is incapable of correctly reporting VAT for ANY business that sells to EU consumers.

Stop telling me about work arounds and sending me links articles to to placate me and tell me when this bug (which is what it is) will be fixed.
 

J.J. Warwick  

I was under the impression that Xero was "Beautiful Accounting"

Workarounds, without a suggestion of a logical, and comprehensive program fix from any Tech Support, does not go down well with me!!

My intention is now to contact Xero's CEO .

What makes me chuckle is that I have to pass a test to be a Certified Partner.

 

Campbell Grant  

J.J. I’ve had a look through your emails with Support and can see a bit of confusion on both sides here.

As you know, there is very specific criteria which determine whether information should be added to Box 8.

You, being VAT Registered, in a EU country are: Distance selling physical goods to a non-VAT Registered customer in another EU country. The total value of these goods, within a calendar year, must also be over a threshold - which is determined by the other EU country. At that point, you have to adhere to all of the VAT legislative and reporting requirements in that other country as well.

What the team tried to convey in their emails, was that there aren’t too many Xero customers who fit the above criteria - which is why it isn’t inbuilt functionality in Xero. Definitely understand that for those where it’s applicable, it may be frustrating that it’s not there. As with all Feature/Functionality Requests, the feedback has been passed on to the Product team for their consideration. However, in the foreseeable future we’re not likely to add support for the legislative requirements of more than one country.

You’ll be the first to know here if there are any changes planned.

Ways around this have been discussed above, but thought I’d outline it here for others who have come across this thread.

---
- Set up a new Tax Rate (using the rate of the other country eg: Ireland 23% VAT on Income) using the tax type of MOSS. Although it’s not a MOSS sale, it’ll allow you to produce an invoice for your customer at the other rate (23%) - without it being included in your VAT return, and Box 1.

- Run the Account Transaction report, and in Report Settings ‘Group By’ VAT Rate Name. This will give you the figures to manually create the VAT Return in the other region, and the figures needed to (manually) adjust box 6 & 8 in your UK VAT Return.

- File your VAT Return in Xero so it’s in sequence - even though the figures won’t match the return you’ve submitted to HMRC.
 

Brittany H (Community Manager)  

My understanding is that ALL sales to other E.U. states have to be reported in Box 8.

By the way, what happened to JJW's reply?
 

Campbell Grant  

Thanks for posting this to the community - now the whole world can see that you are giving out incorrect information about completing a UK VAT return.

Your failure to understand what should be reported in box 8 means you fail to understand this isn't a minor issue - it's a problem that needs to be fixed.

While I agree that there are thresholds that need to be met before you have to start completing VAT returns for specific EU countries, you are wrong about not reporting EU sales in box 8 until you meet this threshold.

ALL EU distance sales of goods (which I'm sure thousands of businesses do - selling online to other EU countries) need to be reported in box 8 (and box 6) - regardless of whether it's a sale to another business or a consumer, or if they are VAT registered or not.

This is not a feature request, or something that only effects a few customers - this is a major flaw in your software as it affects ANY UK business selling anything to ANY EU country.

In addition to being wrong about how to correctly complete a VAT return, repeatedly cutting and pasting workarounds isn't in anyway helpful, it's just patronising and condescending.

I also note that you have edited the subject of my original post to remove the word warning - which is what this post is. Other businesses that ship anything to the EU need to look elsewhere for an accounting product.
 

J.J. Warwick  

Hi JJW

I was in total agreement with you until last Friday. I now differ from you.

I spent a considerable amount of time reading and have come to the conclusion that Distance Selling to non VAT registered persons in other E.U. countries only need to be reported in Box 8 when they exceed the relevant country's threshold.

I looked at Tolleys and I looked at VAT 725 para 6

https://www.tolley.co.uk/__data/assets/file/0007/27088/tg_guide_to_completing_a_uk_vat_return.pdf

In my opinion the matter is now clear, but I would welcome your opinion.

Campbell Grant




 

Campbell Grant  

Thanks Campbell for adding in your thoughts and the PDF.

J.J. there are a few other publications which go into the requirements in detail. You might find the following helpful, but you may also want to speak to your advisor to make sure everything’s being accounted as legislated.

VAT Notice 725

ANNEX 1: VAT THRESHOLDS (APRIL 2015)

I’d included more information for the benefit of others and in consultation with our VAT expert - as it’s a bit different than what Support had suggested to you previously.
 

Brittany H (Community Manager)  

Brittany

Quick question: when do we use the Reverse Charge Expenses (20%) VAT code? It seems to us that the 2 EC acquisitions codes deal with when purchasing from an EC country.

What then is the Reverse Charge Expenses one for (the word "expenses" here suggesting that this is related to a Purchase and not a Sale to an EU country.

Thanks
D
 

Dean Wheeler