How to Capture and Map Customer VAT Numbers into Xero Invoices

Modified on Sat, 31 Jan at 5:26 PM

How to Capture and Map Customer VAT Numbers into Xero Invoices

Why Capture Customer VAT Numbers?

Capturing customer VAT numbers is a critical practice for businesses operating within VAT-registered regions (like the UK and EU) to ensure legal compliance, manage tax liability correctly, and prevent fraud. It is essentially a way to verify that a customer is a registered business (B2B) rather than a final consumer (B2C).

Here are the primary reasons for capturing customer VAT numbers:

1. Enabling "Reverse Charge" (B2B Sales)

When selling to another VAT-registered business, capturing their VAT number allows you to apply the "reverse charge" mechanism.

What it means: You do not charge VAT on the invoice, and the responsibility for reporting the VAT moves to the buyer.
Why it matters: This simplifies the process for cross-border sales and reduces your administrative burden of remitting VAT to foreign tax authorities.

2. Validating Business Status & Compliance

Avoiding Wrongful Tax Exemption: If a customer claims they are a business but cannot provide a valid VAT number, you may be required to charge them VAT, even if they are in another country.
Documenting for Tax Audits: Tax authorities (like HMRC or EU tax authorities) require proof that you correctly applied zero-rated VAT to B2B transactions. A valid, verified customer VAT number is primary evidence.
Preventing Fraud: Verifying the number via official systems (like VIES or HMRC) prevents you from being involved in fraudulent activities where illegitimate entities try to avoid taxes.

3. Proper Invoicing (Legal Requirement)

Mandatory Inclusion: For B2B transactions, it is a legal requirement to include the customer's VAT number on the invoice.
Accuracy: It ensures that your invoices are accurate and that you are not under- or over-collecting tax.

4. Preventing Out-of-Pocket Costs

Avoiding Fines: If you fail to charge VAT because a customer claimed to be registered, but you did not verify their VAT number, you may be held liable by tax authorities for the unpaid VAT, plus penalties and interest.
Accuracy in Invoicing: Without a validated number, you might mistakenly treat a B2B sale as B2C, leading to inaccurate tax reporting.

Summary Table: Why Capture VAT Numbers?

Reason	Impact
Reverse Charge	Shifts VAT liability to the buyer, simplifying your admin.
Audit Trail	Provides necessary proof to authorities for zero-rated sales.
Compliance	Ensures you are adhering to tax laws, avoiding fines.
Validation	Confirms the buyer is a legitimate business.

Note: For international sales, it is highly recommended to validate the VAT number via official channels (e.g., VIES for EU, HMRC for UK) at the time of the transaction to confirm it is active.

WooCommerce VAT Plugins

There are a clutch of VAT plugins for capturing and verifying VAT numbers for use in WooCommerce. These will usually verfify the numbers in the standard public databases.

The expected behaviour is to create the invoice in Xero with the "Zero Rated EC Services" tax code when the order has a valid EU Vat number. There are a few addons handling EU VAT IDs:

https://woocommerce.com/products/eu-vat-number/

https://www.simbahosting.co.uk/s3/product/woocommerce-eu-vat-compliance/

https://wordpress.org/plugins/woocommerce-eu-vat-assistant/

How to Map the WooCommerce Taxes to Xero

For B2B sales with a valid EU VAT ID the invoice should not charge any VAT and the correct VAT code in Xero is "Zero Rated EC Services" (and not the "No VAT").

Set this tax method up in WooCommerce/settings/tax. Once done the tax methods can then be mapped to Xero in the Xeroom/tax settings. Here you will see a dropdown list of all the Xero tax methods available to map to.

How to Map the Customer VAT Number to Xero

You will need to find the custom field used by the VAT plugin with the VAT number on successful verification. These fields are typically as followsand are found in teh WP_usermeta table:

"VAT Number"

"vat_number"

"_vat_number"

Xeroom provides a Field Mapping Tool where the mapping can be made under the WC Meta Key. Once done run a test to ensure the data is flowing into the Xero contact correctly and that it shows on a test invoice (note the invoice templates don't show this until it is in a pdf view).

Capturing Customer VAT Number with any Field Editor Plugin

You can also very easily use any generic field plugin to create an extra field on the checkout to capture information where verification is not needed. eg Checkout Field Editor for WooCommerce Checkout.

This field then appears at checkout as below and in this example saves the customer VAT number to the billing_tax_vat field which is then mapped in Xeroom in the tab as shown above. ie billing_tax_vat from WooCommerce maps to the Contact.TaxNumber field in Xero.

This then appears on the invoices in Xero.

Handling Tax/VAT Exemption

There are cases where the customer qualifies for VAT or tax exemption eg disabled purchasers or construction materials for new properties. The Tax Exemption for WooCommerce plugin works well for this - it adds a tickbox at the checkout and asks for information that can be checked manually and/or set against the user.