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How to deal Google Adwords VAT in Brightpearl

How to record Google Adwords VAT in Brightpearl

Lots of businesses use Google Adwords for advertising and the way that Google Adwords VAT should be reported on these purchases is quite unusual.  There is also no obvious way to do it in Brightpearl.

Google Adwords is based in Ireland and so services bought from them are from an EU supplier and the charges are subject to something called the reverse charge mechanism.

This also applies to other European-based suppliers such as Facebook and Microsoft.

There is no VAT actually changing hands, but if you are VAT registered, the details still need to be reported on your VAT return.

There is no VAT code in Brightpearl that can be used to get all of the VAT entries correct so your VAT returns need to be manually adjusted before they are submitted to HMRC.  There are two ways you can do this in Brightpearl.

Method 1

In order to use this method, you need to be able to separate out all your Google Adwords purchases.  You can do this in several ways; either by setting up a specific supplier to use, or a specific nominal code to use, or simply by making sure that you include the word ‘Google’ in the description on each transaction and then filter your Brightpearl general ledger report using that as a search term.  If you have purchases from other European service suppliers, you will also need to separate these so you are able to find them.

  1. Use a VAT code of ‘T9’ on all Google Adwords purchases.
  2. Run your VAT return in Brightpearl as normal and reconcile it as normal.
  3. Before entering the figures on the HMRC website, manual adjustments need to be made as follows:

Box 1 : Add 20% of your Google Adwords spend to the total that Brightpearl has calculated.

Box 4 : Add 20% of your Google Adwords spend to the total that Brightpearl has calculated.

Box 6 : Add the total Google Adwords spend to the total that Brightpearl has calculated.

Box 7 : Add the total Google Adwords spend to the total that Brightpearl has calculated.

The total VAT amount due will be unchanged, but the boxes on the VAT return will now be correct.

Method 2

In order to use this method, you need to set up a new VAT code to use on these purchases.

To create a new VAT code, first go to Setup -> Localization -> Tax Components and add a new tax component with a 0% rate.  If you have one already, this can be used instead.

Next, go to Setup -> Localization -> Tax Codes and add a new tax code (for example ‘RC’ to stand for reverse charge).  Choose your 0% tax component only to make up the tax code.

  1. Use your new VAT code on all Google Adwords (and other European services) purchases.
  2. Run your VAT return in Brightpearl as normal and reconcile it as normal.
  3. The VAT return report on Brightpearl now shows an additional line for your new VAT code and a figure in the ‘Box 7’ column that gives you your total spend.
  4. Before entering the figures on the HMRC website, manual adjustments need to be made as follows:

Box 1 : Add 20% of your new VAT code spend to the total that Brightpearl has calculated.

Box 4 : Add 20% of your new VAT code spend to the total that Brightpearl has calculated.

Box 6 : Add the total of your new VAT code spend to the total that Brightpearl has calculated.

The total VAT amount due will be unchanged, but the boxes on the VAT return will now be correct.

Still have questions about VAT, Google Adwords or any other Brightpearl accounting quirks?  Give us a call – we’d love to help!

Why not check out our Brightpearl accounting and bookkeeping services.

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