Stripe to Xero UK: reconcile payouts, fees and VAT the right way

• Jump to: Who this is for • What you will set up • Before you start • 10 minute setup • Daily reconciliation flow • VAT on Stripe fees in the UK • Refunds, disputes and chargebacks • Bank rules and light automation • Troubleshooting • FAQs • Video walkthrough

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Who this is for

• UK trades businesses taking deposits or invoice payments by card or Apple Pay using Stripe, and doing the books in Xero.
• Owners, office admins and bookkeepers who want first time bank reconciliation and the correct VAT treatment of Stripe fees.

What you will set up

• A Stripe Clearing bank account in Xero so sales, fees, refunds and payouts all meet in one place.
• Clean payout matching from the clearing account to your real bank feed.
• VAT treatment for Stripe fees that follows your actual Stripe tax invoices.

Helpful background

• Stripe and Xero reconciliation overview: https://support.stripe.com/questions/payouts-and-reconciliation-with-xero-and-stripe
• HMRC VAT Notice 701/49 finance exemption: https://www.gov.uk/government/publications/vat-notice-70149-finance/vat-notice-70149-finance
• VAT place of supply and reverse charge on services: https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a

Before you start

• Decide if you use Xero online invoices with Stripe enabled, or if you take payments elsewhere and only reconcile in Xero.
• Find your Stripe monthly fee invoices in Dashboard -> Settings -> Reporting and documents -> Documents. Docs: https://support.stripe.com/questions/download-tax-invoices-for-stripe-fees
• Check your Stripe payout schedule is automatic. Manual schedules often break auto matching. Docs: https://support.stripe.com/questions/payouts-and-reconciliation-with-xero-and-stripe

10 minute setup

1. Create a clearing account

• Xero -> Accounting -> Bank accounts -> Add bank account -> Add it anyway.
• Name: Stripe Clearing (GBP). Type: Bank. Do not connect a feed.

2. Map default accounts for Stripe fees

• If you use Xero online invoices with Stripe: in Xero -> Settings -> Payment services -> Stripe, select your Fees expense account and default VAT code for fees.
• If you do not use Xero online invoices: you will post fee bills or spend money to the Fees account from Stripe Clearing.

3. Optional VAT presets for fees in Xero

• Create two expense tax options so you can pick the right one per Stripe invoice line:
  • Reverse charge on services 20 percent (for taxable cross border software type services from Stripe Technology Europe Limited).
  • Exempt or No VAT (for merchant acquiring type charges that are exempt when supplied in the UK, or where your invoice shows no VAT and no reverse charge statement).
• Which to use depends on the wording and line items on your Stripe tax invoice. See VAT section below.

4. Payout matching

• In your real bank account in Xero, create a bank rule:

When Reference contains STRIPE or STRIPE PAYMENTS UK
Then action Transfer to Stripe Clearing (GBP)

• This lets you approve payouts with one click.

Daily reconciliation flow

What good looks like each day.

1. Sales

• When a customer pays, the receipt is recorded in Stripe Clearing (either by Xero online invoice automation or your import/app).

2. Fees

• Post Stripe fees to your Fees expense with the correct VAT code, paid from Stripe Clearing.

3. Payout

• When the net payout lands in your real bank, match it to a Transfer from Stripe Clearing. The clearing account should trend to zero per payout cycle.

Simple flow to remember

Sales -> Stripe Clearing -> minus Fees -> Transfer -> Business Bank

Reference: how a clearing pattern works for processors and POS: https://petmanager.zendesk.com/hc/en-us/articles/9418722703247-How-the-Stripe-Clearing-Account-in-Xero-Works

VAT on Stripe fees in the UK

The right VAT code depends on what Stripe has actually supplied to you and which Stripe entity billed you. Always follow your Stripe tax invoice.

• Find Stripe invoices: Dashboard -> Settings -> Reporting and documents -> Documents. Docs: https://support.stripe.com/questions/download-tax-invoices-for-stripe-fees
• If the invoice is from Stripe Technology Europe Limited and lines are taxable services like Billing, Radar, Connect, Data and similar software services:
  • Use a Reverse charge on services 20 percent expense tax code in Xero so Boxes 1, 4, 6 and 7 populate correctly. HMRC guidance on reverse charge for services from abroad: https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a
• If the line is a merchant acquiring or card transaction charge and your invoice indicates no VAT due and no reverse charge, many UK firms treat it as exempt financial services:
  • Use Exempt or No VAT on the fee line in Xero. HMRC VAT Notice 701/49 explains the exemption scope for finance including some card company merchant charges: https://www.gov.uk/government/publications/vat-notice-70149-finance/vat-notice-70149-finance
• Hardware delivered in the UK, such as Stripe Terminal devices, is usually standard rated and will show UK VAT on the invoice. Docs: https://support.stripe.com/questions/taxation-on-terminal-hardware-delivered-to-the-united-kingdom

Note

• There is debate online about the exact scope of exemption for payment processing versus gateway style services. The most robust approach is to follow the wording on your Stripe invoice. If it says Reverse charge, use reverse charge. If it shows no VAT and no reverse charge statement for a merchant charge, use Exempt or No VAT. When in doubt, ask your accountant and keep the invoice PDF attached in Xero.

Refunds, disputes and chargebacks

• Refund before payout
  • Create a credit note against the original sale and refund the payment from Stripe Clearing so the clearing balance reopens correctly.
• Refund after payout
  • The bank outflow from Stripe should be coded as Transfer to Stripe Clearing, then apply it against the original sale or credit note.
• Dispute or chargeback fee
  • Post the fee to your Fees expense from Stripe Clearing using the same VAT approach as above.
• Multi currency
  • Use a separate Stripe Clearing per currency. Do not mix GBP and foreign receipts in one clearing account.

Bank rules and light automation

• Bank rule for payouts

Condition: Payee or Reference contains STRIPE
Action: Transfer to Stripe Clearing (GBP)

• If you do not invoice from Xero
  • Consider a connector like A2X or Synder to bring Stripe fees and settlements into Xero already grouped by payout. This reduces manual work and errors.
• If you use Xero online invoices with Stripe
  • Xero can auto create the fee expense and match payouts if your payout schedule is automatic and one Stripe account is linked to one Xero org. Docs: https://support.stripe.com/questions/payouts-and-reconciliation-with-xero-and-stripe

Troubleshooting

• Payouts not matching automatically
  • Check Stripe payout schedule is automatic, and that the same Stripe account is not connected to multiple Xero orgs. Docs: https://support.stripe.com/questions/payouts-and-reconciliation-with-xero-and-stripe
• Clearing account not zeroing
  • Open the Stripe Clearing account and sort by Statement balance. Look for a missing fee, refund, or unmatched transfer.
• VAT code second thoughts
  • You can edit the tax code on a fee bill in Xero when you receive the monthly Stripe invoice. Attach the invoice PDF for audit.
• Duplicate sales
  • Do not import CSVs and also use a connector for the same period. Choose one source of truth.

Related TrainAR Academy guides

• Square to Xero UK: https://academy.trainar.ai/square-to-xero-uk-daily-sales-fees-and-payouts-using-the-square-balance-clearing-account
• Zettle to Xero UK: https://academy.trainar.ai/zettle-to-xero-uk-how-to-reconcile-daily-sales-fees-and-payouts-with-a-clearing-account
• SumUp to Xero UK: https://academy.trainar.ai/sumup-xero-uk-bulletproof-reconciliation-and-vat-on-fees-for-trades
• GoCardless to Xero UK: https://academy.trainar.ai/gocardless-to-xero-uk-how-to-reconcile-payouts-properly-with-a-clearing-account-and-get-vat-on-fees-right

Video walkthrough

A short explainer that shows reconciling Stripe transactions in Xero.

FAQs

Should I pass Stripe fees on to customers in the UK

For consumer jobs, the UK bans card surcharges. For business to business jobs, rules differ. If you work mainly with homeowners, do not add a card surcharge to invoices. Guidance: https://www.gov.uk/government/publications/consumer-protection-payment-surcharges-regulations-2012-guidance

Which VAT code do I use for Stripe fees in Xero

Follow your Stripe invoice. If it states Reverse charge on taxable services from Stripe Technology Europe Limited, use a reverse charge on services 20 percent expense code. If it shows no VAT and no reverse charge for merchant charges, use Exempt or No VAT. Keep the invoice attached in Xero.

Do I need a separate clearing account per currency

Yes. Create Stripe Clearing GBP, Stripe Clearing EUR and so on. Do not mix currencies.

How do I handle a payout that covers several days

Ensure all sales and fees for those…