Regional Support: Taxes (UK)

[Victor]

Learn more about collecting and managing taxes while running your Shopify store in the UK.

This thread is part of the Regional Support threads offered for merchants in the United Kingdom. To see which other topics are available, you can visit the UK hub here.

The prices of most products sold in the United Kingdom are tax-inclusive, meaning the sales tax (VAT) is included in the price. The standard VAT rate in the UK is currently 20%. To display tax-inclusive pricing, you can adjust your settings to show prices with tax included:



Customers who are required to pay VAT will see the amount of tax that they have paid at checkout and in their order confirmation. Customers who are not required to pay VAT will still pay the full price at checkout, but will see a VAT/ sales tax rate of 0% when making their purchase.

In an example taken from my test store, this first screenshot was taken at checkout when I proceeded with a UK address, making me eligible for taxation:



However, when I change my address to one from the United States, a location where I do not collect taxes, the price remains the same but no VAT is charged:



If you want to be able to charge a lower price for customers who are not required to pay VAT, you can opt to disable the “Show all prices with tax included” option in your tax settings and set all prices for your products to be the pre-VAT rate. This means that customers who are required to pay sales tax will see the appropriate VAT added to their order at checkout, whilst customers who are not required to pay VAT will see no sales tax added. To do this, you will want to ensure that the option shown in step 2 here is disabled:

If this is what you decide to do, then you may also want to list the VAT-inclusive price on your product pages alongside the VAT-exclusive price. We offer a guide on how to do this over at our Help Center.

Shopify is unable to offer direct tax advice to merchants. If you’re unsure of your tax obligations as a business operating in the UK, then we recommend consulting a tax expert for professional advice. We offer our own documentation on setting taxes for merchants outside of the United States and Canada, and you may also find some of these third-party resources helpful: 

• HM Revenues and Customs
• Gov.uk Business Tax
• Gov.uk Business and VAT
• Gov.uk Business Registration
• VAT Calculator
• What tax rates do small businesses pay?

If you have a question or comment to make about managing your taxes with Shopify in the United Kingdom, please post it below.

[pb_ms]

Its still is very inefficient. I want to automatically export the order to Xero and ensure correct VAT classification is done to automate digital filling. None of the add-ons support this. Our B2B customers have also pushed back to this incorrect way to calculating taxes.

Shopify - you got to be serious about this. You are not making things easy for a UK business. 

[Victor]

Hi @pb_ms,

Thank you for providing your feedback here. I completely sympathize with this and understand why not having this data more readily available is a problem for you and your business. I will be submitting your comments to our development team for their consideration and will be sure to emphasize why this issue is problematic. 

Kind regards,

Victor | Shopify Social Care

[FrancescaVivida]

Hello,

I have tried reaching out through Shopify chat service for help with the below situation, but the app solutions presented do not do what we need to be tax compliant in the UK.

Our problem is that we sell on our store both Adult and Childrens product. Adult sales is subject to 20% VAT, children's 0%. If in a sales order 2 items are sold, 1 adult, 1 child, VAT should be applied to the shipping cost. If only a Childrens item is sold, tax should not be applied. After going through all of the settings in the back-end, and speaking to a shopify help desk representative, I couldn't find a solution. 

Do you have any suggestions for apps that could handle this, if Shopify cannot? On a monthly basis I am receiving complaints from our Accountancy team that we are not currently compliant for these sales, and I really need to find a solution. There are retailers that have been able to set this up correctly in the UK trotters.co.uk being an example of this.

Apps already suggested by shopify helpdesk: 

On the other hand, to make this happen like on the other shop you can use third party applications like Advanced Shipping Rules or Tax Exempt Manager.

Thank you!

Francesca

[Victor]

Hi @FrancescaVivida,

Thank you for getting in touch and for detailing your situation. I have reached out to our taxes team on this, and they have told me that Shopify's automated tax system should know how and when to apply shipping taxes to an order dependent on the taxable items in the customer's cart. For example, if you set all of your children's clothes to be non-taxable, no tax should be charged on shipping at checkout. If your customer orders a mix of adults and children's clothing, the amount of tax charged on the order's shipping will be proportionate to the taxable and non-taxable products in the cart.

I hope that explains things, but please let me know if you've more questions.

Kind regards,

Victor | Shopify Social Care

[FrancescaVivida]

Hi Victor,

An added level of complication is that these products are only zero-rated in the UK, we are also registered for Tax in Germany, and these products are not zero-rated there.

I have not selected the setting you have suggested for this reason.

Thank you!

Francesca

[Victor]

Hi @FrancescaVivida,

Okay, I see. As far as you know, does this mean that customers in Germany should be paying taxes on children's clothing, and also paying taxes on associated shipping costs when ordering children's clothing?

Kind regards,

Victor | Shopify Social Care

[SafeHands36]

Hi Victor

I think I have the same problem but opposite way round to Francescas! 

We are a UK company only selling to the UK.  We have some items which are not Taxable, and some items which are.  If the shopping cart contains non-taxable and taxable items VAT is added to the shipping charge correctly.  However, as soon as you take the Taxable item out of the cart VAT does not get added to the shipping charge.  What do I need to do to rectify this?  I should always be charging Tax on shipping regardless as to the tax treatment of the item in the cart. 

Please help!

[Victor]

Hi @SafeHands36,

Thank you for outlining your situation. Do you require taxes to be charged on shipping regardless of whether the item(s) in the cart are taxable or not? Or does the situation you've described only arise when the customer adds both taxable and non-taxable items in the cart, and then once the taxable item(s) are removed, the shipping taxes are removed when they should be kept? I just want to make sure I fully understand what you want to happen, and what is happening.

Kind regards,

Victor | Shopify Social Care

[SafeHands36]

Hi Victor

Thanks for getting back to me. We require taxes to be charged on shipping regardless of whether the item(s) in the cart are taxable or not.

[CPRE]

Hi, 

I'm trying to set up a store for the charity I work at in the UK. We want to test print on demand merchandise. 

If the the customer and our store/charity are based in England, but some of the products are produced in Europe, will additional ta be required about the 20% VAT? 

Thanks 

[Victor]

Hi @CPRE,

Thanks for getting in touch. Am I right in thinking that even though your products are produced in the EU, you're only selling to customers in the UK? Or are you selling to European-based customers too? I believe if it's the former, and you're only shipping your items to British customers, you'll only be liable to charge the 20% VAT rate irrespective of where your goods are sourced from. Please also be aware that you're only required to register for VAT and charge it to your customers if your business meets the thresholds set by HMRC. 

Kind regards,

Victor | Shopify Social Care

[SafeHands36]

Hi Victor

Thank you for your email. We are a UK company selling exclusively in the UK, we are VAT registered, However, many of the items we sell are items which have medical prescriptions so we do not need to apply VAT to these items, but we do need to apply VAT to the delivery charge.

Many thanks

[Victor]

Hi @SafeHands36,

Okay, I see. I checked in with a colleague of mine in our taxes team, and they did urge you to confirm that you still need to charge shipping taxes based on non-taxable items, as this generally is not required and the Shopify tax system works on this basis. However, they did say that if you are confident you do need to charge shipping taxes when non-taxable items are in the cart, there is a workaround you can try. If you set the items as taxable, but then apply a tax override on the items and set the tax rate for those products to 0%, the system will then see the items as taxable and charge shipping taxes as a result, but the rate of tax on those products will be 0% as per the override.

Kind regards,

Victor | Shopify Social Care

[Vintage84]

Hi, my website sell used clothing (630900), we sell way less than 85000 Pounds per year in UK, we have to charge the sale tax when we sell something in UK ?

Thanks.

[Victor]

Hi @Vintage84,

Thanks for reaching out. As per the UK government's website, merchants in the UK are required to register for VAT when they meet certain sales thresholds:

You must register for VAT if:

• you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period
• your business had a VAT taxable turnover of more than £85,000 over the last 12 months

You might also need to register in some other cases, depending on the kinds of goods or services you sell and where you sell them.

I would recommend referring to HMRC's guidance on VAT registration, and to consult a tax professional if you are unsure of your obligations.

Kind regards,

Victor | Shopify Social Care

[bmdesign]

Hi everyone

Getting really confused over taxes and vat.. if someone could help that would be amazing.

I am UK based and plan on sending products to the EU and USA as well as the UK, am I right in thinking I don't need to collect tax if under the £85,000? 

[Victor]

Hi @bmdesign,

Thanks for getting in touch. Taxes can often be a confusing subject, and understanding your obligations as a merchant from a tax perspective is not always easy. It's good to do your own research to learn more but if you are unsure, speaking to a tax professional is always advisable as they can help clarify what taxes you need to charge and remit, and when.

Rules set by HMRC currently dictate that you must register for VAT if your VAT taxable turnover exceeds the threshold of £85,000. It is possible to register before meeting this threshold, but this amount of taxable turnover is the threshold upon which you must register.

In terms of selling to other markets, you may be required to register for VAT in the EU based on certain conditions. You can read more on this on the Shopify Help Center, although you'll likely need to do further research to determine whether or not you are required to register for VAT in the EU. 

For the US, you typically only need to register for sales tax if you have a tax nexus in a specific state, or state. A tax nexus can be defined a physical one, such as having a warehouse or employees in a state, or by economic conditions, such as earning a certain amount of revenue from customers based in a state. If you are just starting to sell to the US, it is unlikely that you'll need to register for sales tax in any state for the time being.

I hope this has helped, but I would also encourage you to read some of the VAT documentation provided by HRMC on their website. Please let me know if you have further questions.

[Zuleica]

Is it possible now to set up pricing so it will display the price including VAT to UK customers and display the price without to customers from other countries at the product level (ie not just at checkout)?

I read this on the shopify site - 

• After you activate the Include or exclude tax based on your customer's country setting, prices are displayed correctly at checkout. However, the product pages or the cart do not display the prices correctly unless either of the following is true:
  • You sell in multiple currencies and use Shopify payments. In this case, prices are displayed correctly at checkout, on the product pages, and in the cart.
  • Customers make their purchases using an address that is located in a region that is eligible for price adjustment, have cookies enabled, have not cleared their browser cache, and are not visiting the store using incognito mode. In this case, prices are displayed correctly at checkout, on the product pages, and in the cart in subsequent visits to the store.

To me this sounds like prices should be displayed correctly at the product level if multiple currencies and shopify payments are used, both of these are the case for my store but VAT is still only being added at checkout.

[Victor]

Hi @Zuleica,

Thank you for getting in touch with your question. Can you tell me what your store's default currency is, and where you sell to where you don't wish VAT to be charged? Can you also tell me if you have prices set up so that taxes are included in the prices of your products, or if they're only added on at checkout?

[Zuleica]

Hi @Victor ,

Default is GBP, we sell globally and don't wish VAT to be charged outside of the UK, taxes are not included in the prices (except for UK customers) but are only visible at checkout, which is the issue.

I added an app, which is solving the issue for $5 per month, but it shows the ex. VAT price for a second before flicking to the full price. It seems like a little bit of code should solve this issue I would hope. It would be great if Shopify had a tick box for it though.

[Victor]

Hi @Zuleica,

Okay, thank you for clarifying. My understanding is that it's required to have prices listed to include VAT when selling most types of products in the UK, which means checking the box that includes taxes is what you should be doing. However, the issue then is your customers in countries who do not have to pay VAT see the tax-inclusive prices, which of course can be a deterrent for them if they believe they have to pay more than they actually will need to.

The workaround you have currently—having prices as excluding VAT, but using an app to add the VAT onto the prices for UK customers—is a solid solution moving forward. However, Shopify does now allow merchants to include or exclude taxes based on the customer's location. Is this a setting you have enabled and set up?

[SafeHands36]

This work round is great thanks, and it works. 

However, I have double checked on the rules and your colleague is right.  If the item(s) in the cart is tax exempt the delivery charge becomes tax exempt too.   As soon as a Taxable product is added, tax needs to get added to the delivery charge.   Shopify does this, so no work around required!   Thanks for all your help with this.  Problem solved!

[Victor]

Hi @SafeHands36,

I'm glad to hear that the workaround worked, even if it isn't needed! I know taxes can be a headache to figure out, but it sounds like you were able to verify that the tax system works as is in this instance. Please get back in touch if you have any further queries.

Kind regards,

Victor | Shopify Social Care

[RobS]

@SafeHands36 In general the VAT rate applied to shipping is based on the VAT rate on the goods supplied. So goods charged at 20% VAT will have 20% shipping, zero-rated goods have 0% VAT on shipping. This is how our store handles it and this is what shopify does by default (it didnt for a long time though!).

There are some exceptions around this I believe (supplying goods for customer approval?). Have you checked out the HMRC guidance?

https://www.gov.uk/guidance/vat-on-postage-delivery-and-direct-marketing-notice-70024#delivered-good...

Disclaimer - I am not an accountant or tax specialist so if it is not clear from the guidance you should check with your accountant for a definitive answer based on exactly how you are trading

[SafeHands36]

Thank you  - I did double checked on the rules and you're correct. 🙂

[V_Studinska]

Hi,

We are located in EU and ship products to UK. We need the Tax of 20% applied in all cases: < 135 GBP and >135 GBP. How can we set it up in Shopify? 

I have already tried to:

- Add Shipping Tax override - The rule around 135 GBP remains active

- add Product Tax override - The override works in case 1 product is in the cart, but the original rule is applied again as soon as there are more items in the cart.

Could you please advise? 

[Victor]

Hi @V_Studinska,

Thank you for reaching out. Can you let me know if you are VAT-registered in the United Kingdom, or just in the European Union?

In most cases, VAT for orders over 135 GBP will not be charged when you are importing products into the UK from the EU. However, you are able to charge VAT to your customers for orders over 135 GBP if you add a physical location within the UK to your store, or if you add a third-party app to your store that can used to charge VAT to your customers, such as Zonos Duty and Tax. A tax override will not work for this scenario.

[V_Studinska]

Hi Victor,

Thank you for the answer. In the end, we went for this solution:

- you are able to charge VAT to your customers for orders over 135 GBP if you add a physical location within the UK to your store;

Best,

Valery

[linzal]

Thanks for tagging this thread Victor, I appreciate it. 

Our Shopify store *use* to calculate the correct tax but something has changed over the last few months. I do have an extensive support case ongoing but to no resolve so far. I even have a Shopify expert looking at it as it's cuasing so much profit leakage.

I conducted testing scripts based on my config to show the issue but tldr;

We stock products charged at both 0% and 20% tax. When a customer only has 0% goods in their cart we do not have to charge taxes on shipping rates. When a customed does have a 20% tax product in their cart we do. We have far more orders with 0% rate goods at around 80 orders a day, meaning we lose currently £66 a day minimum in taxes that we shouldn't have to charge.

Halp.

I attach an example of where it worked perfectly in July 2021.

[Victor]

Hi @linzal,

Thank you for reaching out and for providing those examples. I have touched base with our taxes team on this matter and they have informed me that merchants in the UK should have proportional shipping taxes applied by default on their checkout, and should be based on the prices of the taxable and non-taxable products in your customer's cart.

As an example, where a customer has a taxable product worth £5 alongside a non-taxable product of £10 in their cart, shipping would be taxed at 33% of the value (£5/ £15). If you are not seeing this applied on your store, I would recommend contacting our support team directly so you can be authenticated on your store and this matter investigated in more detail. If you can provide examples of shipping taxes not being applied correctly, our support team will be able to send this to our tax support department for further review if necessary.

[linzal]

Hey Victor,

Thanks for this. Unfortunately, this hasn't always been the case in Shopify
and is also incorrect. Taxes charged on shipping shouldn't be proportional,
that isn't how GST works (at least in the UK).

If a cart has an item subject to 20% GST then the whole shipping amount
also needs to include 20% GST. This can be seen in the screenshot example I
attached from our store to show Shopify has not always applied proportional
shipping taxes.

In July 2021 (random customer order we picked when our store was correctly
charging tax on shipping). It shows that the customer purchased a cart of
£32.85 goods, of which £15.00 was subject to VAT at 20%. It then applied a
correct 20% to the whole shipping amount £5.50 to charge in total £3.42 in
tax. This is no longer happening in my store and I have to have a 20%
shipping override on in order to correct the proportional issue which is
incorrect for our tax returns but means we are overpaying tax.

I have had a Shopify support case open for 3 weeks now trying to resolve
this to no avail or via a Shopify expert 😞

[Flagio]

I'm sorry Victor, but this method is not correct, as @linzal mentions.

His explanation is valid for UK, The Netherlands and every other EU country too.

Regards,

Paul

[RobS]

Thanks @Flagio , @linzal for flagging this.

I had not noticed this myself but have now checked some recent orders and yes, indeed, Shopify have randomly decided to change the way VAT on the shipping of mixed VAT rate orders is calculated.  Changed to be incorrect!

@Victor  - some feedback here for Shopify. Please can you not make random changes to how VAT is applied, calculated or anything else secretly in the background without telling merchants. This has happened repeatedly with various features over the 6 years we have been with Shopify and we only find out at a later date when we notice you've been charging VAT wrong for some time. I don't have time to be constantly checking the functionality of our store to check you guys haven't gone and broken something that was working perfectly well.

Can you tell us when this latest change to the shipping VAT calculation was applied so I know how far back in my accounts in need to go to look?

VAT calculations are pretty important for us business owners to get right. If you are going to change anything in future, can I request that:

• check the VAT rules in the territories that you are applying them.
• consult with store owners, or at least give us all a clear heads-up on planned upcoming changes. That way we will let you know if a change is incompatible with tax rules or is unhelpful in some other way.
• when changes have been implemented send us an email outlining what has changed. A nice clear email that just says "Hello, we have changed X on the function of your shopify store from Y date. Please let us know if there are any problems". Not buried in some newsletter or promotional email.

Apologies for ranting a bit, but frustration boiling over with this sort of thing happening. You (shopify) are supposed to be here to make our businesses easier to run, not harder.

[linzal]

Thanks @RobS @Flagio for this - I honestly thought I had been going crazy for weeks. We have been over compensating for this error to correct the issue (still reasonably new to this trading just over 2 years). As such our store is predominantly made up of 0% goods, therefore meaning on our average 500 orders a week ~ 90% have been charging shipping VAT needlessly. Roughly 450 orders at 0.83p overpayment (thinking it was our configuration error!!!) = £373.50 in lost revenue a week for goodness knows how long. I, too will be going back to find when this first started to occur.

@Victor I echo Rob with feedback. It's really unhelpful for Shopify to make changes like this without alerting regional merchants. I've also been under the impression this has been OUR configuration issue and nearly just spent $700 on a Shopify Expert to rectify this and set it up. Smh. 

Can you also advise when this will be rectified?

On a separate issue we have been trialling Markets and we need to report a bug/issue how can we do this?