Simplifying VAT rates - Sales
There are normally only two VAT rates that you will need in Xero when creating sales invoices:
1) Sales of services to UK customers are always at 20% VAT, regardless of whether the customer is a business or a consumer. The relevant VAT rate to choose in Xero is ' 20% (VAT on income)'.
2) Sales of services to customers outside the UK (including the EU post Brexit) are outside the scope of UK VAT. For these sales you need to select the VAT rate ' zero rated income' in Xero.
For sales of services to customers outside the UK you should also include the following wording on the invoice: "T his invoice is subject to the reverse charge for VAT purposes". In order to do this we would recommend setting up a separate invoice template in Xero for non UK customers - if you need a hand with this please let us know.
The table below summarises the three VAT rates you need to use for sales invoices.
|Type of sale||Xero VAT rate|
|Sale to UK customers||20% (VAT on income)|
|Sale to EU business||Zero rated income|
|Sales outside the EU||Zero rated income|
The above rules apply to sale of services only, not goods. There will of course be some exceptions to these rules (e.g. if you are distance selling to EU customers), but generally this should see you through for most of the transactions that occur. If you come across a more complicated transaction or are still bit unsure, please do not hesitate to contact us directly.
P.s. this guide applies to VAT registered businesses only.