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.

[Victor]

Hi @linzal, @RobS and @Flagio,

Thank you for your replies and for the information you have shared here. I know it's frustrating when your taxes do not appear to be applied properly, and when changes seem to be made to your store without your knowledge. Our automated tax system can be changed regularly given its complex nature and the variety of countries and regions supported by Shopify.

In terms of the shipping VAT issue you have cited, are you able to provide any documentation that outlines how VAT should be charged on shipping in these instances? If you believe our tax system is charging VAT incorrectly, any documentation that you can provide that supports this would be very helpful. I'd be happy to take this to our taxes team and ask them to review the information.

I have spent some time looking for more information myself, and I did come across this blog post that claims VAT is charged proportionally on shipping when there are mixed VAT rates for products in the cart:

Are you shipping items that fall into different VAT categories? If so, then the VAT for the shipping costs is charged proportionally.

Here’s an example:

Your customer orders two different items. The first is a pair of hiking books, sold at £45.00. The second is a book about hiking trails, sold at £15.00.

The boots are taxed at the standard VAT rate of 20%. In the UK, books are exempt from VAT, which means they fall into the zero rate (0%).

The total for the two items is £60.00. In this case, 75% of the invoice is taxed at the standard VAT rate (20%), while 25% is taxed at the zero rate (0%).

If the shipping costs are £6.00, then you’ll charge 0% VAT on 25% of the shipping costs, and 20% on the other 75%. In this example, that means you’ll charge 20% VAT on £4.50 of the shipping costs, and 0% VAT on the other £1.50.

My understanding is that the above example would apply to how Shopify calculates VAT on shipping charges in the UK.

@linzal—if you have encountered a bug or issue with the new Markets feature, please let me know here and I can communicate that to our development team.

[RobS]

Hi @Victor 

The UK government (HMRC) guidelines with respect to this are in row three of table 2.2 at this link:

https://www.gov.uk/guidance/vat-on-postage-delivery-and-direct-marketing-notice-70024#sect4

Now, this is admittedly lacking clarity around how to handle deliveries which include mixed goods at different VAT rates.

So, when our business reached the level of turnover requiring VAT registration this was a key point we checked with our accountant. The advice from our professional, chartered accountant was to default VAT on the whole shipping charge to 20% whenever the mix of goods included at least one item sold at the 20% rate.

I'm guessing this is the same advice that @linzal has also received from their accountant?

There may be further written guidance elsewhere but I am content that my accountant is providing correct advice on this. This sort of advice is usually based on precedents previously set in VAT disputes. I'm happy to run this past my accountant again this week though to check if the general advice in this area has changed recently.

[linzal]

Thanks for coming back to us @Victor really appreciate it. As @RobS has mentioned we have been advised the same by our Accountants since inception of our Shopify store. I will also be happy to speak to our advisor and gain confirmation of this and any relevant guidance notes.

@RobS if it is helpful, so far up to 1st November the correct VAT is being charged for mixed carts. I will continue to track our orders and find where the settings changed.

@Victor with regards to Markets. I set up services for Rep of Ireland to test how it would look (it was set to inactive). I then set up shipping rates for ROI but created a new profile as we only want to ship *some* of of products to ROI. I added one product to test the profile and it worked. It then removed this prodouct from being available to my UK customers at checkout.

[RobS]

Hi @Victor 

So we checked this issue of VAT on shipping charges for mixed tax rate orders with our accountant.

It does seem that the proportionate approach that Shopify has switched to is correct. I therefore retract my criticism in light of this advice from our accountant.

We were trying to remember why we had thought defaulting to 20% flat tax on shipping was originally the right approach. I think it was because the advice we had at the time was that this was a cautionary approach and we were better paying too much VAT than not enough - though for our store the number of mixed tax rate orders is small so only a minor issue.

Apologies to @linzal and @Flagio for my unwarranted certainty on this! I should've known to check with the accountant first!

@Victor - I do still stand by my comments on the communication of changes to store owners. Too many times things change in the functionality of the store without advanced warning, leaving us scratching around trying to figure out what it means. This erodes trust in the platform and I confess this then leads to a presumption that changes have been made with scant regard for stores outside of N America. Better comms can only help everyone. On that note, thanks for engaging with us about this issue.

[Victor]

Hi @RobS,

I appreciate you checking this with your accountant and letting us know what their guidance was. Our tax team do try and stay updated and on top of tax rules around the world, but we are willing to check our own systems if there's evidence that there may be inaccuracies. Thank you for letting us know about this and I am glad to hear that your accountant was able to confirm that things seem to be working as they should.

I can understand your frustration with how changes can be made on the platform, as it can sometimes be opaque or done behind-the-scenes. I know that for many changes merchants are notified ahead of time if these platform changes are expected to impact them in a significant way, but this is not the case for all back-end changes. I would recommend keeping an eye on the Shopify Changelog as many updates are posted there when they are made.

[Victor]

Hi @linzal,

Okay, thank you for these details. I presume that this new shipping profile you created only had the Republic of Ireland listed in the "Shipping to" section? Was the product you referenced still present in the shipping profile you have set up for UK customers?

[linzal]

Hi Victor,

Yes, my UK Shipping Profile has all products by default, the profile I made
for ROI just had the one product and then I found until I deleted this
profile that customers in the UK were not returned with a shipping option
if they had that product in their cart.

I have deleted that ROI shipping profile now and everything returned to
normal.

[Victor]

Hi @linzal,

Right, thank you. If you wanted to try this again, I'd recommend doing so and then contacting our support team directly for further assistance. They'll be able to authenticate you on the store, which I can not do here, and offer more specific troubleshooting to see if there's a reason why this was occurring. If it does indeed seem to be a bug, then this can then be submitted to our Markets development team for further investigation.

[Llama-stuart]

Hi I have a farm shop and we sell animal and human food in the Uk some dog feeds and horse feeds are zero rated Vat but not all are I don't really want to split my horse and dog feed into separate collections of vatable and non vatable feeds the same as some horse supplements are vatable and some not it would make a lot of collections on my website to have one for vatable ones and one for non vatable ones is there another way or am i not getting it right 

[Victor]

Hi @Llama-stuart,

If you have products on your store that you are not required to charge VAT for, you can uncheck the box designating it as a taxable product when you edit the product in the Products section of the Shopify admin:

If this box is unchecked, a customer will not pay any VAT on the product if they add it to the cart and complete their checkout.

That said, if you want to charge VAT on a product but at a different rate from the standard rate present in your tax settings (which should be 20% for the UK), then you would need to add them to a collection and apply a tax override to that collection. Please bear in mind that you do not need to make this collection publicly viewable on your website and it can be used for internal uses only.

I hope this explains things but please let me know if you have further questions.