Why is VAT not deducted in partial refund adjustments?

[tom_wic]

Hi Everyone! 

I've just noticed that on the partial refunds (Refund Adjustment), there is no VAT deductions. 

For example: 

I have sold an item on 12/11/2020 for a price of £100 + £20 (VAT) = £120.00

Then on 20/12/2020 I have made a partial refund of £30.00

On the tax report from Shopify I'll see this partial adjustment of (£ -30.00) as a net amount without any VAT attached/deducted.

My questions is, should I have not see on the tax report from Shopify that I have issued a refund of (£ -25.00 (Net Amount) + (£ -5.00 VAT)) = £ -30.00 in total ?

PS. When I do a cancellation of order or full refund then I can see these adjustment correctly with deduction of net amount and VAT. Only when partial refund is made there is no VAT attached.

Thank you for your assist with my question.

Kind regards,

Tom

[KBetterReports]

Hi @tom_wic,

Kritesh here from Better Reports support team.

I believe this is to do with refund discrepancy, i.e. the excess/shortfall of the returned item. To give more context, Refund discrepancy is Shopify's way of balancing the order. If a product line is refunded, Shopify first cancels that line (including its tax) and always refunds the full amount of the product. If you refunded less (or more) than what the customer paid for, Shopify records an additional 'Refund discrepancy' line to compensate for the difference. This is recorded against net sales (since it doesn't relate to a particular product and therefore does not have a tax rate associated with it).

The exact calculation would depend on how you did the partial refund. To take your example, if on 20/12/2020 you had the entire quantity of the item refunded as well, then you'll see a reversal of the entire tax amount and a  £120- £30 =  £90 appear in your net sales (against no particular product since the product was refunded).

Alternatively, if you did not refund the quantity sold in Shopify and only did a refund, the  £30 would appear as a negative value under refund discrepancy. Again, with no associated product and therefore no tax.

We can create a report that shows this split by line item for each order and can also schedule this to be sent at a regular cadence (say daily). This report can also be exported directly to Excel, csv or pdf.

I encourage you to install Better Reports and start your free 14-day trial, and I'll be happy to set this up for you. 

In addition to building custom reports to meet your specific needs, you'll also get access to 60+ built-in reports that cover many common use cases for merchants and our reports can be scheduled to send to your email or Google Drive at set frequencies.

Let me know how you go and feel free to reach out if you have any further questions. 

[mikecastoro]

Did you ever get a resolution for this?

[Adrian2021]

We have the same issue - made worse as the partial refund exports as a no VAT invoice to our accounting system (Xero) and then every one has to be identified and edited manually for VAT reporting.

[Sam-123]

It's so unbelievable Shopify hasn't fixed this yet. I made video about it here - https://www.loom.com/share/bffc884184f140d69513171cc7e9fae2 

The fact merchants can't subtract the correct sales tax from a partial refund is mind blowing. 

We are not the only merchants who are complaining about this HUGE issue, I've read many reports on the Community Forums and sadly, Shopify doesn't seem to care or respond! Some are dating back to 2018, 5 years later and nothing? So sad. I'm trying to fight for us merchants to get this solved and hope they do. 

[geoffm1]

Brilliant and concise video Sam - Even the boffins at Shopify can now surely understand the problem their system has!

How best can all Shopify users unite and get shopify to make this essential fix?

Otherwise we are just talking to fellow users and Shopify simply ignore us?

ive copied your link agan in ase anyone reads this,

- https://www.loom.com/share/bffc884184f140d69513171cc7e9fae2 

[Sam-123]

@Shopify please fix this huge SALES TAX ISSUE! Partial refunds don't adjust the correct sales tax!!

This is so unbelievable that I need to even explain this issue, it's 2023!! 

I made a screen-share that outlines the problem in clear detail. -  https://www.loom.com/share/bffc884184f140d69513171cc7e9fae2 

I feel bad for all the merchants that don't realize this is happening on Shopify. If any merchant remits the sales tax based on what Shopify says under Tax Reports they are over paying sales tax!! Essentially because Shopify doesn't do this, it's ripping off merchants without them even realizing it. 

When giving a partial refund to a customer, Shopify DOES NOT subtract the appropriate amount of sales tax which means sales tax remains the same in the reports even though a portion of this sales tax was refunded to the customer.

This results in two HUGE Problems in the Shopify Reports!!

1. Since sale tax is unchanged, its always over-reported (remitting this amount would be overpaying and ripping off merchants)

2. Shopify takes this amount out of the net amount which under-reports net sales. This means that net sales are always under-reported. 

For another example, lets say a customer is exempt from sales tax and made a purchase, then requests a refund for this amount. Let's say the sales tax is $200.

Since you can't subtract the sales tax amount Shopify will take this $200 out of net sales instead! So now sales tax will be inflated by $200 and net sales will be ROBBED of $200.

This is so unbelievable that I need to even explain this issue it's March 2023!! 

Please @Shopify I pray you read this and understand this glitch/issue on your platform.  My screen recording outlines this issue in clear detail.