Simplifying VAT rates - Sales
There are only ever three VAT rates that you will need in Xero when creating sales invoices:
1) Sales to UK customers are always at 20% VAT, whether they are to business or individual customers. The relevant VAT rate to choose in Xero is ' 20% (VAT on income)'.
2) Sales to EU businesses are always zero rated. The VAT rate to choose in Xero is ' zero rated EC services/goods'. The key here is to ensure you save the customer's VAT number in the contact details in Xero, because these sales are reported to HMRC on your quarterly EC Sales list.
If there is no VAT number we have to assume the customer is an individual and charge 20% VAT as per option 1.
The invoices for these sales should also state ' this sale is subject to the reverse charge for VAT'. You will want to create a separate sales invoice template in Xero for these sales.
3) Sales of goods or services outside the EU are outside the scope of VAT. For these sales you need to select the VAT rate ' zero rated income' in Xero.
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 (must have their VAT number)||Zero rated EC services/goods|
|Sales outside the EU||Zero rated income|
Now of course there are always going to be some exceptions to these rules, but generally this should see you through for 95% of the transactions that occur. If you come across a more complicated transaction please do not hesitate to contact us directly.