How to set the correct VAT/GST/sales tax on products and customers

The two settings that decide the tax on an order line

Almost every tax question in Breww comes down to two separate settings:

1. The product's tax rate - what rate this item is normally sold at.
2. The customer's tax exempt status - whether this buyer should be charged tax at all.

Breww combines them (along with the delivery address) when it works out the tax on each order line, in this order:

1. If the customer is tax exempt, the line is charged at 0%. Nothing else is considered.
2. If not, and the delivery address is outside the area your rate covers, the line is zero-rated as an export.
3. Otherwise, the product's rate is used.

Everything below is an expansion of those three steps.

Setting of tax rates on products

You can set an account default tax rate in Settings -> Product settings -> Tax rates (the page is named after your local tax, so you may see "VAT rates" or "GST rates"). The rate set here is what will be used as the default whenever you create a new product, however, each product has its own tax rate set on it and you can change this when creating or editing products.

When it comes to placing orders for customers, assuming tax applies (see below), the rate used on each line on the order will be the rate set on the specific product. The account default rate is only used to pre-populate the form for new products.

While the majority of products you sell are likely at the same tax rate, there may be some exceptions (an example being most books in the UK have VAT zero-rated). This is why the rate on the product always takes precedence over your account's default rate.

Rates managed by Breww vs rates you manage

On the Tax rates page you'll see a Rate type column, and some rates carry a Rate managed by Breww badge.

• Rates managed by Breww work out the correct percentage themselves, based on the delivery address and the date of the order. Breww sets these up for you when you open your account, and you can't edit or delete them. UK, EU, US, Canadian, Australian and New Zealand accounts get these.
• Rates you manage are a fixed percentage that you type in yourself using the Add rate button. Breww applies exactly that percentage, with one exception: the Zero-rate for exports option on the rate can drop it to 0% on deliveries outside your tax territory (see Exports are usually zero-rated automatically below).

The Indicative rate column is only a guide. For a managed rate, the actual percentage used on an order can differ, because it depends on who you're selling to and where. A 0% on exports badge in this column means the rate drops to 0% on deliveries outside your tax territory.

"No tax" is not the same as a "0%" tax rate

When you pick the tax rate on a product, the very first option in the dropdown is No VAT / No GST / No Tax (the wording follows your country). It sits above your real tax rates, and it's easy to assume it's just a quicker way of saying 0%. It isn't.

Both options mean the customer pays nothing extra. The difference is how the sale is classified, and that classification is passed on to your accounting software and to any electronic invoices you send.

Breww picks the matching code in your accounting software for you. Every package names these two classifications differently, and the wording varies by country on top of that, so what you see in your own account may read differently again.

This matters because most accounting packages report the two differently on your tax return. A zero-rated sale is usually still part of your taxable turnover, whereas an exempt or out-of-scope sale usually isn't. Which classification is correct for a given product is a question for your accountant, not something Breww can decide for you.

If your account doesn't already have a 0% rate (UK and EU accounts get a "Zero rate" set up automatically, US and Canadian accounts do not), you can add one with the Add rate button on the Tax rates page and set it to 0%.

Why a line came out at 0%

A line can end up at 0% for more than one reason, and Breww records which one applied rather than treating them all alike. That reason is what decides how the line is labelled on your invoice, and how the sale is classified when it's passed on to your accounting software, so the same sale is treated consistently everywhere.

"VAT" is replaced by your own tax name, so a New Zealand account sees "GST exempt", and so on.

Because the reason is recorded against each line, the tax breakdown on your invoice keeps them apart. An order containing both an exempt line and an export line shows two separate 0% rows rather than merging them into one.

How to set which customers get charged tax

For each Customer type in your account, you can set whether tax applies to its related customers. You can also opt-out of tax any individual Customer account, or a Parent company.

All three places have a "Tax exempt" checkbox. If this box is checked in any of them, then tax will not be applied.

This flowchart shows the decision logic for whether to charge tax on an order:

The per-customer checkbox is an admin-only setting, found under Additional customer options (Brewery admins only) when editing a customer. See Additional customer options for the other settings that live there.

What happens when the product's rate and the customer's status disagree

The customer always wins. If a customer is marked as tax exempt, every line on their order is charged at 0%, no matter what rate the products use. You never need to change a product's tax rate to stop charging a particular customer.

The reverse isn't true: there's no way to force tax back on for a customer who is exempt, or for a product set to No Tax. If one customer needs to be charged and another doesn't, control it with the exempt checkbox, not the product.

Exports are usually zero-rated automatically

You don't normally need to do anything special for export orders. Breww looks at the delivery address on the order and applies 0% automatically when it falls outside your tax territory:

Your tax territory is wider than your own country in the UK and the EU, so a Dutch brewery selling to Belgium is not exporting and the sale is taxed as normal.

Rates managed by Breww always work this way. On a rate you manage yourself, it's controlled by the Zero-rate for exports checkbox on the rate, which is ticked by default. Untick it if that rate should charge its percentage everywhere regardless of where the goods are going.

Breww uses the order's delivery address for this. If the order has no delivery address, it falls back to the billing address, and then to your own brewery address.

The reverse charge within the EU

If your account is in the EU and you sell to a business in a different EU country, Breww applies the reverse charge and the line is charged at 0%. Whether a customer counts as a business comes from the "Are customers of this type generally a business or consumer?" setting on their Customer type. If a customer has no customer type set, Breww assumes they're a business.

Worked examples

A standard domestic sale

You're a UK brewery selling cases of beer to a pub in Leeds.

• Product tax rate: UK Standard rate VAT
• Customer "VAT exempt": unticked
• Result: 20% VAT, calculated from the date of the order.

Nothing else to configure. This is the default for almost every sale you make.

A UK charity or exempt business

You supply a registered charity that has given you evidence it shouldn't be charged VAT.

• Product tax rate: leave it as UK Standard rate VAT
• Customer "VAT exempt": ticked (on the customer, or on a "Charity" customer type if you have several)
• Result: 0% VAT on every line of their orders.

Don't be tempted to create a separate 0% version of each product. The exempt checkbox is the right tool, it applies to everything they buy, and it keeps working if your standard rate ever changes.

An export that's zero-rated automatically

You're a UK brewery shipping pallets to a distributor in France.

• Product tax rate: leave it as UK Standard rate VAT
• Customer "VAT exempt": unticked
• Delivery address country: France
• Result: 0% VAT, and Breww records the line as an export rather than as exempt.

The same happens for a delivery to Jersey or Guernsey, which sit outside the UK for VAT purposes.

A US sale where no tax is due

You're a brewery in Colorado shipping to a customer in Texas, and you have no sales tax nexus in Texas.

• Product tax rate: US Sales Tax (Breww's managed US sales tax rate)
• Customer "Tax exempt": unticked
• Result: no sales tax, because Breww knows you're not registered to collect it there.

You don't need the exempt checkbox for this. Save it for buyers who are genuinely exempt, such as a wholesaler who has given you a resale certificate. Note that US sales tax works nothing like VAT: there's no standard/reduced/zero rate ladder, and the percentage comes from the customer's ZIP code. See Setting up & managing sales tax (GST) in the US.

An Australian export

You're an Australian brewery shipping to New Zealand.

• Product tax rate: Australian GST (managed by Breww), or a rate you manage yourself with Zero-rate for exports ticked
• Customer "GST exempt": unticked
• Delivery address country: New Zealand
• Result: 0% GST, recorded as an export rather than as exempt.

If you've unticked Zero-rate for exports on a rate you manage yourself, that rate's percentage is charged on overseas deliveries too. The 0% on exports badge on the Tax rates page tells you at a glance which of your rates will zero-rate.

Country-specific notes

United Kingdom

Breww sets up three managed rates: UK Standard rate VAT, UK Reduced rate VAT and Zero rate VAT. The standard rate is date-aware, so orders dated before a rate change use the older percentage automatically.

Deliveries anywhere outside the UK and the Isle of Man are zero-rated automatically, including the Channel Islands.

European Union

Breww sets up EU Standard rate, EU Reduced rate and Zero rate in your local tax name. The percentage is looked up per country and per date, so you don't need to maintain a rate per country yourself.

• Selling within your own country: your country's rate.
• Selling to a business in another EU country: 0% under the reverse charge.
• Selling to a consumer in another EU country: the buyer's country rate if you're registered there, otherwise your own country's rate. See the One-Stop-Shop section below.
• Selling outside the EU: zero-rated automatically.

United States

Breww sets up a single managed rate, named US Sales Tax, which handles state, county, city and special district sales tax from the customer's ZIP code together with the states you've registered a nexus in. Connecticut accounts also get a manually managed Connecticut Sales Tax on Beverages rate at 7.35%, which is set as the default for new products.

Points that trip people up:

• There's no zero rate set up by default. If you want one, add it yourself with Add rate.
• If you have no nexus in the customer's state, Breww charges nothing automatically. That's not the same as the customer being exempt, and you shouldn't tick the exempt checkbox to achieve it.
• Whether tax is based on where you are or where the customer is depends on the state. Breww handles origin-based, destination-based and California's modified-origin rules for you.
• Hawaii wholesale (business to business within Hawaii) is charged at 0.5%.
• Deliveries outside the US are zero-rated automatically.

Full detail is in Setting up & managing sales tax (GST) in the US.

Canada

Breww sets up a single managed rate, named Canadian GST/HST or Canadian GST/HST/PST depending on your province. The rate applied depends on the delivery province:

• In an HST province, HST is applied.
• Elsewhere, GST is applied, plus PST when you're delivering within your own PST-operating province.
• The invoice tax breakdown splits the total into its GST, HST and PST components rather than showing one combined figure.
• Deliveries outside Canada are zero-rated automatically.

Your customer's province must be recognisable, or Breww can't calculate the rate and will ask you to correct the address.

Australia and New Zealand

Breww sets up a single managed rate, named Australian GST or New Zealand GST. The percentage is looked up from the date of the order, so historic orders use the rate that applied at the time (New Zealand's GST has been 15% since October 2010, and 12.5% before that). Deliveries outside your own country are zero-rated automatically.

If your account has been open for a while, you may still see the rate Breww created when you signed up, such as "10% GST" or "15% GST". Check the Rate type column on the Tax rates page:

• If it reads Australian GST or New Zealand GST with the Rate managed by Breww badge, you're already on the managed rate and there's nothing to do.
• If it still reads Manually set rate, because the rate was renamed or its percentage changed at some point, it stays a rate you manage yourself. That's perfectly fine to keep, and exports are still zero-rated while Zero-rate for exports is ticked, but do get in touch if you'd like us to move you onto the managed rate.

Other countries

Breww doesn't have a managed rate for every country. When you opened your account, Breww created a single rate at the percentage you gave us and you manage it yourself.

Because it's a rate you manage:

• The Indicative rate column shows exactly what will be charged on a domestic sale.
• Exports are zero-rated while Zero-rate for exports is ticked on the rate, which it is by default. Outside the UK and the EU, that means any delivery outside your own country.
• You can add further rates, including a 0% rate for tax-free sales, with the Add rate button.

If you'd like Breww to add managed rates for your country, please get in touch and let us know.

What about orders from external sales platforms (such as website orders, POS integrations, etc)

Orders that are imported to Breww from external platforms (integrations) have their tax options set by the external platform. The external platform will tell Breww if tax should be applied or not and in most cases will also tell us the amount of tax to apply. If you have any orders from external platforms with the incorrect tax amount, please first check with the external platform as the problem most likely lies there.

Intra-EU B2C sales and the One-Stop-Shop (OSS)

Breww has full built-in support for calculating the correct VAT to apply to sales within the EU for EU business registered in multiple countries. What you need to do is ensure that all of your products are using Breww's managed EU tax rates rather than a manually set tax rate. To do this, go to Settings -> Product settings -> VAT rates (or similar, the wording might vary from country to country).

If you have products using a manually set tax rate (from before Breww had built in support), ensure they are all moved to the Breww-managed "EU Standard rate VAT" rate. You can do this quickly by deleting your manual tax rate. When you delete a tax rate, you'll be prompted for an alternative tax rate to updated all products, etc to use.

Finally, there will be a blue "Manage EU VAT registrations" button under the list of tax rates. If you use this, you can check all the countries in which you are registered. If you're part of OSS then you need to check all of them.

If you do add a rate you manage yourself while based in the EU, Breww will point this out when you save it. A fixed percentage can't apply the buyer's own country rate for sales to consumers in another EU country, and it can't handle a One Stop Shop registration. It does still apply the intra-EU reverse charge for business customers.

Disclaimer

Nothing in this guide should be considered tax or legal advice in any way.

This article serves as a guide on how to configure Breww to work effectively for you. It's your responsibility to ensure that you are familiar with the tax rules applicable to you, and no tax advice should be gleaned from this article in relation to the correct tax rate to apply to any given sale, or anything else.

You're also responsible for verifying that Breww has applied the correct tax rates as intended. If you encounter anything you don't understand, please don't hesitate to ask us. Breww Ltd cannot be held in any way responsible for any incorrectly charged tax amounts, anything else related, or any repercussions as a result of incorrectly reported/charged tax amounts.