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.

[tyrra000]

What settings should I apply, If I'm earning less than £85,000 in taxable turnover? 

[Victor]

Hi @tyrra000,

Thank you for reaching out with your question. As you're probably aware, the £85,000 figure you referenced is the taxable turnover threshold for which you must register your business for VAT with HM Revenue and Customs. You can read more about this on the UK government's website.

If your business' VAT taxable turnover -  the total value of everything you sell that is not exempt from VAT - is under this £85,000 threshold, and will not hit this threshold in the next thirty days, you do not need to register for VAT with HMRC. If your business is not registered to pay VAT in the United Kingdom, you should not need to charge UK-based customers VAT when they place orders on your Shopify store. This can be configured in the Shopify admin.

If you head to Settings > Taxes, you should see the United Kingdom as a region listed here. If you are marked as "collecting" for taxes in the UK, you can press "Edit" - this will then give you the option to change the rate of tax charged:

Changing this figure from 20% to 0% and then saving will ensure no taxes are charged to customers in the United Kingdom when they checkout.

As with all tax-related enquiries, I'd recommend doing your own research into you and your business' tax obligations, and to consult with a tax professional if you are unsure on what you need to do. I'd also recommend checking out some of these third-party resources on this topic for additional advice:

• Should I charge my clients VAT?
• Registering for VAT - what you need to know
• Understanding Sales Tax (VAT) in the UK and Europe

I hope this has helped clarify things but please let me know if you have more questions.

Kind regards,

Victor | Shopify Social Care

[tyrra000]

Thank you so much! I understand it much better now.

[Paul_M-77]

Hi - are any other UK stores frustrated by this?

My overseas customers are constantly pinging me asking why they are being overcharged (since their price doesn't drop when the tax is removed)

It would be an even bigger problem in the UK to show prices ex-VAT to consumers, so please don't offer that as a feasible solution.

It is a severe restriction on our overseas growth at the moment - as it's impossible for me to show competitive prices

Does anyone have a meangingful work-around?

Thanks

Paul

[Victor]

Hi @Paul_M-77,

This is something we've heard from merchants in tax-inclusive countries before, including the UK. It's not an ideal situation but this is something our development team is aware of and considering. I have submitted your feedback to them and if any changes to this system are made I will be sure to update this thread.

I understand that it would be problematic to show pre-VAT prices on your store when selling to UK customers without also showing the VAT-inclusive price; one option you have would be to perform a theme customization, shown here, which would display both the tax-exclusive and tax-inclusive prices on the product page. Another option would be to use an app such as Multi Country Pricing to reduce the prices of your products for customers in countries and regions where you do not need to charge VAT, whilst keeping your prices as VAT-inclusive for your customers in the UK.

Kind regards,

Victor | Shopify Social Care

[tarung17]

Hi I am just starting a new store ,I really do not know what will be my sales but I want to start as sole trader now to save accountant bills but as and when sales revenue hit more than 30K in a year I plan to open Ltd company. In order to change from sole trader limited company in future, should I just change the payout account details on shopify addmin and change privacy policy etc on website. Is there anything else I need to consider during that time as I want to plan in advance. Also at what revenue does Shopify notify the HMRC about revenue I assume its $20K for USA. 

[Victor]

Hi @tarung17,

Thank you for reaching out with your questions. In terms of switching from a sole trader to a limited company, I'd recommend updating any documentation on your site that says otherwise with the updated information. I'd also suggest checking out the steps to creating a limited company on the government's official website.

For merchants with a US Shopify Payments account, Shopify will file a 1099-K form to the IRS when the merchant has made a minimum number of transactions and amount of revenue in a year. I do not believe the same situation applies for merchants with a UK Shopify Payments account in terms of HMRC, and it is down to the merchant to file and submit all relevant tax documentation to them directly.

Further advice I can offer on setting up a limited company is limited, so I would suggest reading through these third-party resources for more information on the process and what you should consider:

• Setting up a Limited Company: Five Key Considerations
• Considerations When Starting a Limited Company
• 10 things you should know before setting up a limited company

Please let me know if you have further questions.

Kind regards,

Victor | Shopify Social Care

[Virtuosoaccount]

Hi @tarung We help making the decision of setting up a limited company and to have a plan to submit the tax returns.

Please get in touch with us

[Victor]

The UK government has set up a hotline for businesses concerned about paying their taxes due to the coronavirus pandemic. The number in question is 0800 0159 559 and more information can be found here.

In summary:

HMRC has a set up a phone helpline to support businesses and self-employed people concerned about not being able to pay their tax due to coronavirus (COVID-19).

The helpline allows any business or self-employed individual who is concerned about paying their tax due to coronavirus to get practical help and advice. Up to 2,000 experienced call handlers are available to support businesses and individuals when needed.

I will attempt to update this thread with any tax-related information as the situation progresses.

Victor | Shopify Social Care

[richardg64]

My store is based in the UK. I just started a trial account using shopify.com rather than shopify.co.uk.

Should I switch to a shopify.co.uk site?

[Victor]

Hey @richardg64,

Thank you for reaching out, and welcome to Shopify! There's no difference between stores or accounts when signing up through shopify.com or shopify.co.uk, so there's no need to close your store and restart one via the .co.uk site.

Kind regards,

Victor | Shopify Social Care

[FazalKhan98]

Hello! I am just started my shopify store in the UK and I plan on selling a few things but before I get started I was wondering if you could help me with some queries.

1) I am a student with no knowledge on taxes etc. When do I charge VAT? And if I am selling to people in the UK as well as the US should I change any tax settings etc? 

2) When am I supposed to pay taxes and how should I pay them?

Thank you!

[ColinR]

Hi Victor,

In your second screen shot you show what the inclusive tax amount is - I only see what shows in my store as the third screen (amount, sub total, and total are al the same). What should I be looking at to get the tax amount showing. Is this driven by the theme?

[Victor]

Hi @ColinR,

Thank you for reaching out. It's possible that this could be due to the theme you're using, as the theme ultimately determines how data from the backend of Shopify is presented on your storefront. Do you definitely have prices set to be tax-inclusive? And when you test this, are you entering in an address from a region where taxes are due to be charged?

If you'd also be happy to share you store's URL here, I can take a closer look for you.

Kind regards,

Victor | Shopify Social Care

[Victor]

Hi @FazalKhan98,

Thank you for reaching out with your questions, and I'm glad to hear that you're considering these questions when getting started. Taxes can be confusing, and the information I can provide is limited, but I'll offer the advice I can below.

Your primary source of information should come from the UK government's website, and I have included a number of links from them in the first post in this thread. This page specifically explains some of the key details when it comes to charging VAT, and what your responsibilities as a business owner are when it comes to collecting and paying VAT when selling in the UK. There are certain thresholds that, once met, your business must be registered with HM Revenue & Customs in order to pay VAT—at the time of writing, this is when your business' VAT taxable turnover is more than £85,000.

You will also want to consider how you want to set up your business, such as as a sole trader or a private limited company, which will also impact what your tax obligations are. Generally, most merchants who are starting a business in the UK will do so as a sole trader, as this is usually an easier process and comes with less associated costs and regulations. More can be read on this here.

I would recommend when starting out it is best to focus on one market to begin with, and make sure you have everything set up correctly there first, but if you do wish to expand and sell into the USA and other countries, that can be done too. It is unlikely that if you are based in the UK and have no physical presence in the USA (e.g. a warehouse, office etc), you would be required to charge your customers sales tax on orders, although your customers would be subject to import duties. I would suggest taking a read through this blog I came across which offers advice on this topic.

Please bear in mind that Shopify cannot offer direct tax advice to merchants, and can only really help with helping you configure your tax settings in the backend of the store. If you are just starting out, however, and therefore likely do not need to register for VAT at this point, then you likely will not need to charge your customers VAT for orders on your Shopify store. Here is another blog that covers this topic.

Ultimately, it is your responsibility to determine what your tax responsibilities are and what that means for your business and customers, so I'd highly recommend doing your own research on this topic prior to launching the store. There are a host of online resources on this topic, both from the UK government and third-party websites and blogs, so you should find the information you need. The links I've provided here and in my initial post should give you a good start. If you are still unsure, you could also consider hiring a tax professional to ensure you are doing everything correctly.

Kind regards,

Victor | Shopify Social Care

[ColinR]

Thanks @Victor 

Theme is Brooklyn and URL is masatojones.myshopify.com

We're on the cusp of having to charge VAT so I'm not sure at what point we should be seeing this. At the moment we're not showing a tax inclusive message but before we turned it off it wasn't showing as per your example hence my question.

Best Wishes,

Colin R.

[Victor]

Hi @ColinR,

Thank you for sharing your store here. I did add a product to the cart on your store and proceeded to checkout, and indeed there was no mention of taxes as part of the order here. This is likely because you do not have some settings enabled which allow for taxes to be charged, and/ or displayed at checkout.

As your store is a UK-based business, you'll presumably want to have taxes included within the price of the product—if so, you'll want to have this option enabled in Settings > Taxes:

This means when taxes are due to be charged to the customer, the price you've listed for the product(s) in the admin will be deemed tax-inclusive and the customer will be shown how much of their order is VAT.

You'll also want to ensure that your products are taxable, otherwise the customers will not be shown any tax information at checkout. You can check whether taxes are due to be charged for a product by heading to the Products section of the admin and clicking on the product in question. If you have numerous variants for a product, the "charge taxes" option will be viewable within the variant editor:

You can also enable taxes to be charged for numerous products and variants at once via the bulk editor.

To clarify, if you enable this option on products and variants, this does not mean taxes will always be charged at checkout—it just means the system will include the tax amount if the customer is eligible to pay VAT. As an example, if you have a £5 product and you are required to collect VAT from UK customers but not those from the USA, whilst customers from both countries would pay £5, only the customer from the UK would see that VAT is being charged as part of their order.

I hope this clarifies things but please let me know if you've further questions on this.

Kind regards,

Victor | Shopify Social Care

[Dunne-08]

Hi. Our store is facing VAT fees when delivered to our international and UK customers and we have discovered that this is happening to our products and not happening from products bought and delivered from other similar stores. Our store is based in the US and so are other similar stores. The example I will give is clearer if I tell you from my personal experience as a customer.

I live in Ireland and work for a US clothing merchandise store. I had the store send me a t-shirt (from US to Ireland) to the value of $35 and I had to pay a VAT fee @23% on arrival to collect the hoodie.

Around the same time I ordered a t-shirt, vinyl & CD from a different merchandise store where it was almost double the cost $68 but I did not have to pay any VAT on arrival, despite it costing more. I order from them frequently and never paid VAT fees.

So as you can see VAT charges occur from our merchandise but not from the other merchandise store even though we are in the exact same business and both ship using USPS. I cannot find out why this is happening, only that maybe VAT fees are calculated and included in shipping costs of other stores and we have not set that up.

Our customers from various countries have told us that they also had to pay fees on our products so it's not an exclusive problem to me in Ireland.

Do you have any idea what's going on? Any insight would be greatly appreciated.

[colinsweetman]

@Dunne-08 

If your online purchase costs more than €22 you will have to pay VAT. If your online purchase costs more than €150 you will have to pay VAT and customs duty. This will be collected by the company that delivers your parcel. The company usually have an administration charge. Methods of delivery and collection differ from company to company, so you should contact them directly for more information.