Square to Xero reconciliation: clean UK setup with a clearing account and correct VAT on fees

Category: Integrations • Niche: payments, reconciliation, Square, Xero, Amaka, VAT

Contents

• Quick answer
• What you will set up
• Before you start
• Step-by-step setup
• Daily reconciliation flow
• Fees and VAT (UK specifics)
• Troubleshooting common issues
• Format options: daily summary vs per order
• Useful links
• Related Academy guides
• FAQs

Quick answer

• Use the free Square ↔ Xero integration by Amaka to post a daily sales summary to Xero.
• Reconcile via a Square Balance “clearing” account: the integration posts sales/fees to Square Balance; your bank feed shows the Square payout; you match the payout to a transfer from Square Balance.
• Record Square processing fees to a Fees expense account. Square fees are calculated on the gross sale (including VAT), so your reported VAT on sales stays correct; the fee itself is a business expense. See Square’s UK pricing and reports for details: Square UK pricing and VAT, fee and service charge reports.

What you will set up

• Square ↔ Xero connection (Amaka)
• A Square Balance clearing account in Xero
• Tax mapping for UK VAT rates
• Optional: enable Square as a Xero payment service to take card payments on Xero invoices

Suggested Xero accounts

| Purpose | Xero Account Type | Example Name | |---|---|---| | Clearing ledger for Square | Current Asset (Bank or Asset) | Square Balance | | Card fees | Expense | Bank Fees: Square | | Sales income | Revenue | Sales (Square) |

Before you start

• Xero user with permissions to add bank/asset accounts and connect apps.
• Square account active in the UK.
• Decide your sync style (daily summary is easiest for reconciliation; per‑order sync is possible but heavier on bookkeeping).

Useful references:

• Xero’s partnership page for Square: xero.com/uk/partnerships/square
• Amaka’s Square + Xero setup guide: amaka.com/help/guide/square/xero/
• Square UK pricing: squareup.com/gb/en/pricing

Step-by-step setup

1) Create a Square Balance clearing account in Xero

• In Xero, add an account called “Square Balance”. Type: Current Asset. Code it logically (e.g., 1‑170). Some bookkeepers prefer a Bank type to enable transfers; either works if you’re consistent.
• Create an expense account “Bank Fees: Square” (Type: Expense).

2) Connect Square and Xero with Amaka

• Go to the Xero App Store collection or Amaka’s guide: Square + Xero setup.
• Choose Daily Summary sync.
• Map the “Square Balance” to the clearing account created above (Amaka has specific steps: Square Balance mapping).
• Map payment types and tracking as needed (e.g., Location → Xero Tracking Category): Payment type mapping, Tracking categories.

3) Map VAT correctly for the UK

• In Amaka tax settings, map Square’s tax rates to your Xero VAT rates (e.g., 20 percent Standard, 5 percent Reduced, 0 percent Zero). See: Setting up taxes for Square.
• In Square, check your VAT settings and whether prices are tax inclusive: Create and manage VAT settings.

4) Optional: enable Square as a payment service for Xero invoices

• If you send invoices from Xero, you can add “Pay by card” via Square. See: Activate Square as a Xero payment service.
• If you do this, follow Amaka’s note on reconciling Xero invoices paid through Square: Reconciling Xero invoices paid through Square.

Daily reconciliation flow

• Amaka posts a daily summary invoice/journal to Xero for Square sales and fees and allocates to Square Balance.
• Your bank feed shows a payout from Square to your business account.
• In Xero Bank Reconciliation, match the payout to a transfer from Square Balance. The Square Balance account should trend back to zero after each payout cycle.

Tip: If you are new to Xero’s bank rec screen, this short explainer is handy: “Xero Bank Rec – Beginner Tutorial” on YouTube by Learn About Xero.

Fees and VAT (UK specifics)

• Square’s processing fee is calculated on the gross amount you charge the customer, which includes VAT where applicable. See Square UK pricing and VAT/fee reports.
• In your books:
  • Sales and output VAT are recognised from the sale value.
  • Square’s fee is posted as an expense (reduces profit, not VAT on sales).
  • VAT on Square’s own subscription or hardware invoices may be charged separately by Square and will appear on their invoices; process those supplier bills in Xero as normal.
• If you are on the Flat Rate Scheme, remember card processing fees are not a reduction to your flat rate VAT; they are simply an expense.

Quick check each month

• Square Balance ending balance aligns to any undeposited Square payouts at month end.
• Fees posted to “Bank Fees: Square” roughly match Square’s monthly fee report.
• VAT on sales in Xero tallies with your Square tax reports for the same period.

Troubleshooting common issues

• Payout in bank but no matching transfer from Square Balance:
  • The daily sync may have failed or is set to a different mapping date. Re-run the sync in Amaka and check the Square Balance mapping.
• Fees double counted:
  • Ensure you are not importing both detailed order lines and daily summaries for the same period. Pick one method.
• Wrong VAT on sales:
  • Revisit tax mapping in Amaka and confirm Square’s VAT settings match how you price jobs (inclusive vs exclusive).
• Multiple Square locations:
  • Use tracking categories per location in Amaka to keep P&L by crew or region.

Format options: daily summary vs per order

• Daily summary (recommended):
  • Fast, tidy bank rec, minimal transactions.
  • Ideal for trades who only need totals by day/location.
• Per‑order / detailed sync:
  • Better if you need line‑level reporting in Xero, but more noise in the ledger. Consider using tracking in Square and running operational reports there instead.

Useful links

• Xero ↔ Square partner page: xero.com/uk/partnerships/square
• Amaka Square + Xero setup: amaka.com/help/guide/square/xero
• Amaka bank feed reconciliation guide: amaka.com/help/guide/xero-bank-feed-reconciliation
• Square UK pricing: squareup.com/gb/en/pricing
• View VAT, fee and service charge reports: squareup.com/help/gb/en/article/8360-view-tax-fee-and-service-charge-reports

Related Academy guides

• Stripe to Xero UK: reconcile payouts, fees and VAT the right way
• Zettle to Xero UK: how to reconcile daily sales, fees and payouts with a clearing account
• Card machine says no signal? How to take payments offline on site

FAQs

How do I reconcile Square payments in Xero?

• Use a Square Balance clearing account. The integration posts daily sales and fees to Square Balance; your bank shows the payout. In Xero, match the bank payout to a transfer from Square Balance.

Do I pay VAT on Square fees?

• Square’s processing fees are calculated on the gross sale (which includes VAT). The fee itself is a business expense in Xero. For Square’s own subscription or hardware invoices, VAT may be charged and will appear on Square’s invoices; process those as supplier bills.

Should I use daily summary or per‑order syncing?

• For most trades, the daily summary keeps the ledger clean and makes bank rec simple. Use per‑order only if you truly need each transaction in Xero.

What if my Square payout spans two days of sales?

• That is normal. The clearing account holds the timing difference. Provided the mapping is correct, the Square Balance will return to zero after each payout cycle.

Can I take card payments on my Xero invoices via Square?

• Yes. Enable Square as a payment service in Xero. Follow Amaka’s guidance to reconcile invoice payments correctly.

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