For a retailer, wholesaler or manufacturer, sales of goods is the biggest number in the profit and loss account, and it feeds box 6 of the VAT return. A single “Sales” account can hold it, but then every VAT check and every question about which channel is growing means unpicking invoices by hand. A small amount of structure in the nominal ledger avoids that.
Start with VAT treatment
The split that matters most is by VAT liability, because different liabilities are reported differently and are the first thing HMRC asks about on a VAT enquiry.
| Sales account | VAT treatment | Examples of goods |
|---|---|---|
| Sales – standard rated | 20% | Most goods: furniture, electronics, adult clothing, tools |
| Sales – reduced rate | 5% | Children’s car seats, mobility aids installed in an older person’s home, domestic fuel and power |
| Sales – zero rated | 0%, still a taxable supply | Most food, books and printed matter, children’s clothing |
| Sales – exports | Zero rated with evidence of export | Goods shipped to customers outside the UK |
| Sales – exempt | Exempt, not taxable | Uncommon for goods; ask your adviser before using it |
| Sales – outside the scope | No UK VAT | Goods supplied from stock held abroad and delivered there |
You only need the accounts that apply. A bookshop that also sells gifts needs standard and zero rated; a garden centre might add reduced rate. The difference between zero rated and exempt matters: zero-rated sales let you reclaim input VAT in full, while exempt sales can restrict it. HMRC’s VAT rates on different goods and services lists which rate applies to what.
Then split by channel, if it helps decisions
Within the VAT split, add channel accounts only where you will actually read them: shop, website, marketplace, trade accounts. A business selling through a marketplace usually receives payouts net of fees and refunds, so record the gross sale in sales and the fees as a cost; card payment clearing in the chart of accounts explain how to clear the payout. If the channel split is purely for management reporting, a department or tracking category may do the job without multiplying nominal accounts.
Worked example: a web order with delivery
A homeware shop sells a lamp for £90 plus VAT and charges £10 plus VAT for delivery. The customer pays £120 by card.
| Account | Debit | Credit |
|---|---|---|
| Card payment clearing | £120.00 | |
| Sales – standard rated (web) | £90.00 | |
| Delivery income | £10.00 | |
| VAT control account | £20.00 |
A delivery charge made by the seller of the goods is normally part of a single supply and takes the VAT treatment of the goods. If the same order contained a zero-rated book as well, the delivery charge would be apportioned between the two rates. Our article on VAT on delivery charges works through mixed baskets. Keeping delivery income in its own account also shows whether postage is subsidised.
Returns and refunds
When goods come back, do not reduce the original sales account by journal. Raise a credit note that reverses the sale, VAT included, and post the net amount to a sales returns account that is presented as a deduction from turnover. You then see gross sales, returns and net turnover separately, and a rising return rate on one product or channel is easy to spot. The returned item goes back into stock at cost if it can be resold.
When the sale is recognised
Revenue from goods is recognised when the customer obtains control of them, which for most UK sellers means on delivery or collection, not when the order is placed or the deposit is taken. FRS 102 Section 23 covers this; its revised five-step model, which applies to accounting periods beginning on or after 1 January 2026, reaches the same answer for ordinary sales of goods. A deposit taken before dispatch is a liability in customer prepayments until the goods go out.
VAT timing can differ from revenue timing. The VAT tax point for goods is normally the date they are sent or made available, but an earlier invoice or payment creates an earlier tax point. So a deposit can be in the VAT return before it is in turnover.
Where turnover appears
In the statutory profit and loss account all these accounts roll up into the single line turnover, stated net of VAT, trade discounts and returns. Companies with more than one class of business or geographical market may need to analyse turnover in the notes, which the VAT and channel split makes easy.
Monthly checks
- Box 6 of the VAT return should agree to the total of all sales accounts, plus any other outputs such as fixed asset sales.
- Box 1 should be about 20% of standard-rated sales plus 5% of reduced-rate sales, plus any reverse charge VAT; a large gap usually means a VAT code was wrong.
- Export sales need export evidence on file for each shipment.
- Compare gross margin by channel month on month; a sudden change is more often a coding error than a trading event.
Agree the sales split with your accountant before you set up the books, so the VAT checks and margin comparisons above work from the first month.