How to Deduct Input VAT From Your Costs

Input VAT is the VAT you pay to suppliers on your purchases. If your product or handling costs are entered including VAT and your business reclaims that VAT, this setting credits it back in your reports, so your profit is not reduced by tax you get back.

Where: In the sidebar: Store settings > Tax & VAT, section Input VAT Deduction
Who: VAT-registered shops whose costs are entered including VAT
Time: 2 minutes, plus the recalculation
Updates: All existing orders of the shop are recalculated right away. New orders use the setting on import

Turn On Input VAT Deduction#

There is no Save button: every switch and the rate are saved as soon as you change them.

Only turn on the two deduct switches when your costs are entered including VAT (gross). If you enter costs without VAT (net), leave them off. Otherwise VAT that was never in the cost is credited and your profit is overstated.

What Happens Next#

Changing either deduct switch or the Purchase VAT rate starts a recalculation of all existing orders of the shop. A progress window opens, and the settings on this page are locked until it has finished.
Input VAT not reclaimable needs no recalculation. Your reports change the next time they load.
All past periods change, not only new orders.
Your costs stay as you entered them: Cost of Goods Sold and Handling Fees do not change. The input VAT changes the Tax row instead, and with it Subtotal, Gross Profit and every profit figure below.

How the Amount Is Calculated#

The VAT is extracted from the cost you entered, because that cost already contains it:

input VAT = cost × rate ÷ (100 + rate)

Worked example. In one period you sell goods for $1,190.00 including $190.00 VAT. The product costs of those orders are $476.00 and the handling costs are $23.80, both entered including 19% VAT.

Step	Calculation	Result
Input VAT on product costs	$476.00 × 19 ÷ 119	$76.00
Input VAT on handling	$23.80 × 19 ÷ 119	$3.80
Input VAT in total	$76.00 + $3.80	$79.80
Tax row, deduction off	$190.00	$190.00
Tax row, deduction on	$190.00 − $79.80	$110.20

Cost of Goods Sold stays at $476.00 and Handling Fees at $23.80. The Tax row is $79.80 lower, so Subtotal, Gross Profit and Net Profit are each $79.80 higher.

The rate is one rate for the whole shop. The Calculation method selector higher up in the same card belongs to the tax on your sales, not to input VAT.

The Settings#

Deduct input VAT on product costs. Default: off. On: the VAT contained in the product cost of every order line is credited in the Tax row. Off: product costs count in full. Example: a line with a product cost of $11.90 at 19% gives $1.90 input VAT. Turn it on if the purchase prices you entered include VAT and you reclaim it.

Deduct input VAT on handling costs. Default: off. On: the same calculation for the handling cost of every order line. Example: $1.19 handling at 19% gives $0.19 input VAT. Turn it on if your handling and packaging prices include VAT and you reclaim it.

Purchase VAT rate. Starts at 19. The rate used in the formula above, between 0 and 100 with up to two decimals. With a rate of 0 no input VAT is calculated.

Input VAT not reclaimable. Default: off. Off: input VAT is a credit that lowers the Tax row and raises profit. On: the same amount is added to the Tax row and lowers profit. The switch does not change how the amount is calculated, and it applies to every input VAT line, including tax reported by a supplier. Example with the numbers above: the Tax row becomes $190.00 + $79.80 = $269.80. Turn it on if a supplier reports tax that you cannot recover, for example tax on AliExpress orders.

If you cannot reclaim VAT and your costs are entered including VAT, leave the two deduct switches off. The VAT is then already part of your costs. Turning on a deduct switch together with Input VAT not reclaimable counts that VAT twice: once in the cost and once in the Tax row.

How the Tax Row Is Built#

The Tax row in the dashboard's Overview is one number made of up to three parts. Expand the row to see each part.

Line under Tax	What it is	Effect on Tax
Output VAT (orders)	Tax collected on your sales, minus tax on refunds, split by country	Raises it
Flat rate, or a supplier name	Input VAT on product and handling costs	Lowers it. Raises it when Input VAT not reclaimable is on
Ad Spend Tax	Tax on your advertising, split by ad platform	Lowers it for ad accounts marked Reclaimable, raises it for the others

A line only appears when it has a value. Example: $190.00 output VAT, $79.80 reclaimable input VAT and $19.00 reclaimable ad spend tax give a Tax row of $190.00 − $79.80 − $19.00 = $91.20.

Ad spend tax has its own settings on the same page. See How to Set Up Ad Spend Tax.

Where Input VAT Appears in Your Reports#

Dashboard. In the sidebar, open Dashboard and scroll to Overview.

The sample shop in the screenshot has both deduct switches off, so it shows no Flat rate line. Its only input VAT is tax reported by AliExpress, which appears without any switch. For an order line, either the supplier's reported tax or the flat rate is used, never both.

Income Statement. In the sidebar, open Reports > Income Statement and expand Taxes.

The Pivot Table report shows the same single Input VAT line under Tax.

Troubleshooting#

I turned on a switch and the Tax row did not change. Check these in order:

Check	Fix
The recalculation is still running	Wait until the progress window has finished, then reload the dashboard
Purchase VAT rate is 0	Enter the rate contained in your purchase prices
The orders have no product cost	Input VAT is taken from the cost of each order line. Enter costs under Product Costs first
The date range contains no costed order	Pick a date range with orders that have costs

The Purchase VAT rate field is greyed out. Turn on one of the two deduct switches first.

The settings on the page are locked. A recalculation for this shop is running. The controls unlock when it has finished.

My profit went down after turning the setting on. Input VAT not reclaimable is on. With it, input VAT is added to the Tax row. Turn it off if you reclaim the VAT.

There is an input VAT line although both switches are off. A supplier integration reported tax on your supplier orders. It is credited by default. If you cannot recover that tax, turn on Input VAT not reclaimable.

If the numbers still do not add up, contact support and send the shop name, the date range, one order number, and the product cost and VAT rate you expect for it.

Limits#

One Purchase VAT rate applies to the whole shop. A different rate per product, supplier or country is not possible.
The flat rate is only applied to product costs and handling costs. Shipping costs, transaction fees and expenses are not included.
The amount is always extracted from a cost that includes VAT. There is no option that adds VAT on top of a net cost.
Input VAT is counted for the same orders as your product costs. Orders whose product costs are left out of your reports contribute no input VAT.