How to charge VAT on shipping when VAT is not charged on the product - UK

[SafeHands36]

We should be charging VAT on all our delivery charges.  However, when a customer checks out with items on which VAT has not been charged, VAT does not get added to the delivery charge.

How can I resolve this?

Our Shopify site mainly sells business to business we therefore do not need to display VAT on our prices.

Some of the items we sell are vatable, some are not.

The settings are as follows: 

Charge Tax on Shipping Rate = box checked

Charge Tax on Digital Goods = box checked

All Prices include VAT = Not Checked

Individual Items. "Charge tax on this item" checked or not checked depending on the item.

Any help or advice would be greatly appreciated.

[iamarobot]

If you mean you sell zero-rated products like kids clothing, then your delivery can be zero-rated to.

Google it. 

You've just saved a lot of money!

I sell zero-rated and 20% rated products. 

If I sell only zero-rated products in an order, Shopify doesn't charge VAT for delivery - whoever wrote the code knows what they are doing. 

If I sell only 20% rated products in an order, Shopify rates the delivery at 20% - this is also correct. 

However, if an order contains a mix of zero-rated and 20% rated, the VAT on the delivery should be apportioned (based on £, I assume)

Shopify is not doing this correctly for me.

Anyone know how to get shopify to do it correctly for mixed orders?

[SafeHands36]

Thanks for your comments.

I'm not sure how charging or not charging VAT is saving a company any money.  If you're a VAT registered company, and you charge VAT you're effectively collecting VAT on behalf of HMRC?

In terms of the delivery charges.  As soon as there is one item in the order, for which you need to charge VAT, then the 20% VAT will be applied to the delivery charge.  You need to imagine that it's the only item in the order.  There should be no apportioning of the VAT between zero rated and non zero rated items.  Shopify is calculating it correctly.

I hope that all makes sense!

[iamarobot]

If you charge the customer £6 and VAT is rated at 20%, you give £1 to HMRC
and you keep £5.

If you charge the customer £6 for delivery, then if it's zero rated, you
keep £6.

That £1 goes straight to your bottom line profit.

if of course you only charge £5 for delivery when the the delivery is zero
rated then it will make no difference to how much money you keep. It will
be £5 both times. But I very much doubt that you are changing the delivery
cost on your website when the product is zero -rated.
So that's why it makes £1 difference to your profit.

I've been dealing with VAT for 30 years, but check with someone else!

Secondly:
My reading of the VAT legislation is that delivery can be apportioned as I
originally specified if the order contains some products that have VAT at
20% and some that are zero rated. Again check with someone else like an
accountant. But accountants are often wrong about VAT. One week ago my
accountant told me that all delivery is standard rated. She quickly changed
her mind when I sent her the link to the legislation!

[SafeHands36]

As my original post states we are B2B so prices are listed net of VAT, then VAT added to the product and delivery charge depending on VAT liabilities of the products checked out.

The HMRC rules do mean where there is a mixture of VAT liabilities within a particular consignment, the VAT can be varied accordingly.  Shopify doesn't calculate this.  However, from our point of view, given the frequent mix of products attracting VAT and products not attracting VAT, it is simpler and more transparent to the customer if the VAT charged on delivery is either set at 20% or Zero rather than a proportionate calculation

[iamarobot]

It's obviously not legal to charge 0% VAT on something that should be 20%
It might be legal to charge 20% on something that should be zero - as long
as you give the money to the VATman.

It might be that you are stating one VAT rate on a website and a different
if a VAT invoice is requested - I doubt that is legal.
It might be that you paying HMRC the correct amount regardless of what you
state on the website. Trouble is if your customers reclaim more VAT than
you have paid to HMRC.

I'm surprised that businesses using shopify aren't in a world of
trouble with HMRC about these problems, but it will be coming down the line
one day if HMRC get a sniff that they may be missing VAT revenue.

They have many years to come after us

[SafeHands36]

My comments regarding the treatment of VAT on the delivery charge when there is mix of VAT items and Non VAT items in an order comes directly from an Indirect Tax specialist with 30 years of experience, five of which were with HMRC.   

This practice has been happening for many years, pre internet shopping.  The NEXT directory, as an example, which was launched in 1988, and would have been selling a mixture of items some of which attracted VAT and some of which did not.  Our own tax authority, HMRC have clearly chosen to take a pragmatic approach to the situation. I have chosen to do the same.    HMRC will be well aware of the practice. I don't think anyone is breaking the law.  Personally it's not keeping me awake at night.

[iamarobot]

As you say, you are B2B, so it makes no difference to you. 

If you are B2C, like Next, it makes a big difference, especially if you've got the kind of mix of products that Next have that could be in one order

Kids clothes zero rated

Adult clothes 20%. 

[NFFTB]

Hi there

Did you find a solution to this problem? I'm in a similar situation.

Cheers

[Rostislav]

HI everyone, 

This is a question which comes up very often. 

The rules in the UK and EU are very similar when it comes to VAT rate applied to the shipping. 

Shipping is an incidental expense/cost . it means that you do not buy it separately, you only buy it with the product. And the rule is that the shipment attracts the same VAT rate as the  underlying  product. If there are products with different rates in the shipment , one technically should weight the shipping rate to the price of products and apply the products' VAT rate to the part of the shipping which is attributable to this product. Shopify cannot do it. 

But if you sell  only books or children clothes (0 VAT rated in the UK) you should apply 0 VAT rate to the shipping.

Some people mistake input VAT (VAT charged by logistics company ) to the shipping for the Shipping VAT that you charge to your customer (which is output VAT). It may be the case that you are charged 20 percent VAT on the shipping services provided to you (to merchant) by the courier (and you claim that input VAT) but you charge 0 VAT to your customer , since you sell books in the UK.     

Yours, 

Rostislav 

[evaEscofet]

Hello, please help! How can I remove VAT from the shipping rates at checkout settings on shopify? I cannot seem to be able to do it. I’ve even tried adding a shipping override but it’s still adding VAT to shipping! Thanks in advance. 

[Rostislav]

Override should do it. Can you share tax settings here?