There's a particular kind of good mood that comes from your first direct sale. You've spent years handing 30, 40, 50 percent of every book to a platform, and then one day someone buys straight from you, and almost all of it lands in your account. It feels like the first sensible thing you've done in ages.
Then the VAT return comes round, and you realise that a slice of every one of those sales was never yours.
If you've had that moment, or you're about to, this one's for you. And if you also pay someone a share of your books, a co-author, a narrator, an editor, there's a second half to it that's easy to miss and quietly expensive. I want to walk through both, give you a way to handle it in your own spreadsheet today, and then, near the end, tell you what I ended up building.
Why this catches people out
Here's the thing nobody warns you about: until you sell direct, this problem genuinely does not exist for you.
Every distributor you've ever used is the seller of record. Amazon sells your book. Audible sells your audiobook. Kobo, Apple, Ingram, all of them. They handle the tax in whatever country the reader is sitting in, and the report they send you is already net of it. The number on that statement is your money. You have never once had to think about it.
The first time you sell from your own storefront, that changes completely, and nothing on the screen tells you so. You are the seller now. The money that lands has the tax sitting inside it. It looks like a bigger number because it is one. Part of it just belongs to someone else.
You're not bad at this. You've had fifteen years of training that says "the number on the report is the number I earned," and then one channel quietly stops working that way.
The bit that actually costs you
The VAT itself you'd have caught eventually. Your accountant would have raised an eyebrow, you'd have set some money aside, and it would have stung once.
The expensive version is what happens if you pay somebody a royalty share.
Say you sell an audiobook direct from your own shop for £10.00. In the UK that's standard-rated, so £1.67 of it is the tax authority's and your actual revenue is £8.33. Your narrator is on a 50/50 share. Half of £8.33 is £4.17.
But if you're working from the number that landed in your account, you'll pay them half of £10.00. That's £5.00. You've handed over 83 pence that was never yours, and you've paid the VAT on it as well, so you're down twice.
Once, that's nothing. Across a year of direct sales it's real, and here's what makes it nasty: nothing ever tells you. Your narrator isn't going to complain about being paid too much. Your spreadsheet doesn't know. The only way you find out is by going looking.
This is not a thing you should have known. It's a non-obvious consequence of two perfectly reasonable decisions: selling direct, and paying a fair share.
The UK trap inside the trap
If you're selling in the UK, there's a wrinkle that catches even people who've got the main idea.
Printed books are zero-rated. Ebooks have been zero-rated since 2020. Audiobooks are not. They're standard-rated at 20 percent, digital or physical, because HMRC treats an audiobook as audio entertainment rather than reading. Campaigners have been trying to change that for years. It hasn't changed.
So one storefront, selling the same title in three formats, carries two different rates. Your paperback and your ebook: nothing. Your audiobook: a fifth of the sale price.
Two more things while we're here. You only register for VAT once your turnover passes £90,000, so plenty of people reading this don't need to yet. But sell a digital file to a customer in the EU and there's no threshold at all: VAT is due in their country from your very first sale, handled through the One Stop Shop scheme. That one surprises people.
I should say plainly: I'm not an accountant, and none of this is tax advice. Rates and thresholds move. Take the shape of the problem from me and take the numbers from someone qualified.
The manual fix
You can handle all of this in the spreadsheet you already have, and it takes about ten minutes to set up. The principle is simple: take the tax out before you do anything else.
Split your direct sales out by rate, not by shop. If you sell ebooks and audiobooks from the same storefront, they need to be two separate lines in your sheet, because one rate cannot be right for both. Treat "my shop, audiobooks" and "my shop, ebooks" as two different sources of income. This is the step people skip, and it's the one that matters most.
Add a VAT column immediately after your gross column. For a VAT-inclusive amount, the formula is the gross times the rate divided by one hundred plus the rate. At 20 percent that's just gross divided by six. So =B2/6 where B2 is your £10.00, giving £1.67.
Add a net column, and make it gross minus VAT. Not gross times 0.8. Subtract the rounded VAT figure you just calculated, so your three numbers always add up exactly. £10.00 minus £1.67 is £8.33. It sounds fussy, but the day someone queries a statement you'll be glad the columns tie.
Point every royalty formula at the net column. This is the whole job. Nothing that calculates anybody's share should ever look at the gross column again.
Total the VAT column per quarter. That's the number your accountant wants, and it's now sitting there ready.
That's it. It's a real fix, it costs nothing, and if you never do anything else about this you'll be fine. Some people will run exactly that for years, and honestly, good.
What I built
Where it still costs you is the same place every manual system does: you have to remember. Every month, every new title, every time you add a format. Miss the setup once on one new product and it's paying the wrong share silently until you happen to look.
So in Royaltally, each sales channel now has a switch on it: amounts include VAT, and a rate.
Tick it for your own storefront, leave it alone for ACX and KDP and everyone else, because those platforms are the seller and already report you net. From then on, every figure that comes in on that channel gets the tax taken out first, automatically, before anything is split. The royalty maths runs on the real revenue, every time, without you thinking about it.
And it shows the working. On the statement your narrator or co-author receives, under the line, it says: Gross £10.00 less VAT £1.67 = £8.33 net. They can see exactly what happened and why their share is what it is. That mattered to me more than the automation did. A smaller number with no explanation is how a good relationship starts to wobble; a smaller number with the arithmetic printed underneath is just a fact.
You still get your VAT total for the period in the reports and the CSV export, so the number for your return is there when you need it.
What it does not do, and I want to be blunt about this, is file anything. Royaltally works out the split correctly when VAT is involved. It does not do your VAT return, and it isn't trying to be your accountant.
It came out of a conversation with an author I work with, who mentioned almost in passing that he pays VAT on his direct sales. I went and looked at what my own software would have done with that, and it would have split the gross. So that got fixed.
Either way
Whether you add the spreadsheet columns or let something do it for you, the thing to take away is this: on your own storefront, the money that arrives is not all revenue, and anybody's share should be worked out on what's left after the tax comes out. That's the entire idea. Everything else is arithmetic.
If you'd like the software to handle it, come and have a look; the free plan covers three titles with full splits and statements, and the VAT switch is on every plan including that one. And if you'd rather keep it in your own sheet, you now know exactly which column to point your formulas at.
You've got this. And if you've been splitting gross for a while without realising, you haven't broken anything. You've just found it, which is the hard part.