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.

[Stefano555]

Hi

yes, for the first issue, you are doing correctly. Regarding distance-sales (whether online or not) EU countries have agreed that under certain annual sales thresholds (each country has its own threshold) a EU company of the country X selling to a non-VAT customer in a EU country Y is allowed to charge on the invoice the VAT of the country X. If, on the other hand, the total annual sales in the country Y are above the country Y threshold, then, exclusively for the sales above the threshold, the company  in the country X has to register for VAT in the country Y, has to invoice the VAT% of the country Y and has to transfer the VAT collected in the country Y to the tax authorities of the country Y.

Regarding selling out of EU, either a company sells to a vat-customer or to a non-vat customer, VAT does not apply : no VAT value has to be invoiced. So it is up to you if to adjust consequently your online selling price or not.

Regarding UK, it is a mess. For sales above 135£, UK says that the local tax authorities will claim to the local UK non-vat customer the custom duties and the VAT. How they will do this, I think nobody knows. Imagine the amount of work that is!

For sales under 135£, UK wants any non-UK company to collect the VAT  directly from the UK customers. This is why they ask for UK VAT registration. So the non-UK company selling into UK will have to collect the VAT from the final customer and then transfer the VAT amounts to the UK tax authorities. If you are a small company that is a big constraint.

[Paul_M-77]

Yuriy is my new hero

[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

[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!

[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

[BowieFan]

Hi . I have set up a Shopify shop in the UK. Initially my products were just children's clothes which are 0% VAT. Also I don't turnover enough to be VAT registered so I wasn't concerned about this.

I now am adding some items that VAT is charged on. Do I tick or untick the box that says "Charge Tax on this Product" ? Not sure what I am meant to do here now.

Thanks 

[Victor]

Hi @BowieFan,

Thank you for getting in touch with your question. If you are not required to charge any VAT on the products sold on your store, then you can set the UK tax rate to 0% in Settings > Taxes. However, if you are required to charge taxes on some products but not others, you can set the UK tax rate to the correct amount (20%) and then use the "Charge taxes on this product" option to enable taxes for some products but not others.

However, if you still don't meet HMRC's minimum turnover threshold to register for VAT, you likely won't need to charge taxes on any of your products. You may wish to consult with a tax professional if you are unsure of your obligations.

Kind regards,

Victor | Shopify Social Care

[JKD19]

I'm also non-VAT registered and cannot set to 0% in the setting, can you help please as saying 'Not collecting'

[thebluehound]

Please read Victors (moderator from the other thread) response. It’s in beta and will only be accessible to the ‘invited’ shops....for now

[JKD19]

'Invited' and in Beta - the new laws will change as from 1 Jan 21.  Why is Shopify taking time?

[Stefano555]

It's quite confusing. I am reading over the Internet. I cannot understand if the distance-selling threshold of 70000 pounds turnover which currently applies will continue to apply or not after 01.01.2021. If it does, if your yearly online sales turnover into UK is less than 70000 pounds, then there is no need to apply for a UK VAT number. But, in such a case, what about the invoice? Should VAT amount be in the invoice or not. ?And does the 135 pounds threshold applies or not ? Very confusing!!!

[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

[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.

[Dunne-08]

Yes that is correct, my issue is that our products are liable for VAT when over 22 but there are no VAT charges from products bought from others stores over 22. Do we need to register for VAT, are we not supplying the right paperwork?

[FitzgeraldLobe]

Hi,

I’ve seen some videos and read posts about that topic. Will this be made more automatic or easier to manage in later updates?

Especially here in Europe every country, EU and non- EU member, has its own VATs as you know. 

Would be great if the system could automatically display the gross price or netto price/ tax free based on the customers country. 
We have in Austria regularly a VAT of 20%, and the reduced VAT is 10% for food, beverages, books & magazines, rents, public transport. 

So if a customer from Switzerland (non- EU member) orders 4 candles (20%) and 1 book (10%), I want my shop to display the correct prices for my customers country.  

Any chance this will happen? I know that would be a nightmare for every programmer...

thanks, Manfred

[pb_ms]

We are setting up a grocery shop on Shopify and we need to charge VAT as per the following:

1. Exempt = the product is not taxable
2. Zero rated = 0%
3. Reduced Rate = 5%
4. Standard Rate = 20% on other items

This depends on the type of product that are sold. Is there a way to create different tax classes and assign products to them? We need to display prices inclusive of VAT and ensure correct taxes are charged at checkout.  

[colinsweetman]

Hi 

Yes  this feature is built into Shopify. You need to code the products to reflect their correct VAT treatment. 

Also- I assume you are only selling locally?

[pb_ms]

Can you please provide some details as I couldnt find any. 

We are initially selling within UK only. 

[Victor]

Hi all,

Apologies for the delay in my response here—there was an issue with our notifications system for this thread, and I was not aware of your posts here until I checked it today. I'll quote and respond to a number of your posts here.

@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.

Thank you for detailing your issue here. When you say your store is facing VAT fees when you export your products from the USA to Europe, can you clarify what is happening exactly? Are you receiving a notice to pay VAT directly, or is it a case that your customers are seemingly being charged VAT, either when they checkout or receive the products? Is your business solely based in the US, or do you have any presence in Europe? You mentioned you work for a US company but are based in Ireland—does the business have numerous employees based in Europe, and/ or physical presences such as warehouses or offices? 

From the sounds of it, the issue you're experiencing is something external of Shopify and may require consultation with a tax professional to resolve. However, if you can answer my questions above, I'll see if I can help at all.

---

@FitzgeraldLobe:

Hi,

I’ve seen some videos and read posts about that topic. Will this be made more automatic or easier to manage in later updates?

Especially here in Europe every country, EU and non- EU member, has its own VATs as you know.Would be great if the system could automatically display the gross price or netto price/ tax free based on the customers country.

We have in Austria regularly a VAT of 20%, and the reduced VAT is 10% for food, beverages, books & magazines, rents, public transport.

So if a customer from Switzerland (non- EU member) orders 4 candles (20%) and 1 book (10%), I want my shop to display the correct prices for my customers country.

Any chance this will happen? I know that would be a nightmare for every programmer...

thanks, Manfred

The way pricing and taxes work within Shopify means that the tax-inclusive price will display and be charged to customers, irrespective of whether they are due to pay VAT or not. If they are due to pay VAT they will see the correct tax amount charged as part of the cost, whereas customers not required to pay VAT will still see the same price but their tax rate will be set at 0%. This is how the process works if you have taxes included in the price of your products.

However, you can charge both tax-inclusive and tax-exclusive prices if you change your Shopify settings so that the prices shown on the storefront do not include VAT, and then it is added on at checkout if a customer is required to pay. If you are required to show the tax-inclusive prices on your storefront, you can make some edits to your theme to have both prices display. This process is detailed in further detail in my opening post for this thread.

---

@pb_ms:

We are setting up a grocery shop on Shopify and we need to charge VAT as per the following:

1. Exempt = the product is not taxable
2. Zero rated = 0%
3. Reduced Rate = 5%
4. Standard Rate = 20% on other items

This depends on the type of product that are sold. Is there a way to create different tax classes and assign products to them? We need to display prices inclusive of VAT and ensure correct taxes are charged at checkout.

 I believe this should be possible using our tax override feature. You'll be able to create collections specifically for this purpose, and then create a tax override to apply a specific tax rate to products you've added to the collection. I'd recommend checking out our guide on this over on our Help Center.

Kind regards,

Victor | Shopify Social Care

[FrancisByng]

Hi Victor

We are a store charging UK VAT at various rates like @pb_ms: We are on Shopify Plan

We have set up Tax Rate Override collections which work OK but nowhere can I find how to get a report breaking down the sales in each tax category. The Tax Report lumps all taxes together as one total but I need to report the various tax rates separately to our tax authorities.

What am I missing?

FB

[Victor]

Hi @FrancisByng,

Thank you for reaching out today. Unfortunately, I do not believe there is a detailed tax report within the Analytics section of the Shopify admin that shows you orders with a breakdown of which tax rate has been applied. Do your tax overrides apply to specific products and collections, or specific customers too? If they just apply to products/ collections, it may be possible to manipulate the main sales report to show only the products that apply to each override you've set up. If you can tell me a bit more about your overrides and what they apply to, I can perhaps offer a more workable solution.

Outside of the internal reports available in the Shopify admin, you could also consider a third-party reporting app available on the Shopify App Store. These apps offer more detailed analytics and most offer free trials, meaning you can install them and test them out to see if they offer the data you're looking for here.

Kind regards,

Victor | Shopify Social Care

[FrancisByng]

Thanks for your reply, Victor

The additional tax rate categories have been set up as Collections. I have looked at manipulating the sales report but I cannot see any option to filter by Collection (which would capture the data for my tax categories) so I am stumped

I have also looked at some of the apps in the Shopify App Store but I have not been able to find anything suitable

Is there any way to download the detail of each transaction and then manipulate in Excel? I could then extract and total all order lines those with the relevant VAT charge

FB

[Victor]

Hi @FrancisByng,

Okay, thank you for those additional details. One thing you can do is export orders from the Orders section of the admin, which will provide you with a .CSV file which can then be opened and worked with in spreadsheet programs like Excel. There is a column in this file called "Tax 1 Value" which will detail what tax rate was applied to the order in question. You can then filter the orders via this column if you wish to only look at orders that included a specific tax rate.

Please give this a try and let me know if this method helps at all.

Kind regards,

Victor | Shopify Social Care

[FrancisByng]

Thanks again for your help

Unfortunately I don't think this solves the problem. Shopify lumps all taxes together into one total for each order (not each line). So if there are multiple items in the order, at different tax rates, then it is impossible to extract the individual tax rates and amounts without manually analysing each order.

Of course I could Tag every product which has non-standard tax, and there is a field in the order transaction data titled "Tags" (Column BE in Excel) but Shopify does not seem to write any data in here.......... perplexing.

FB

[pb_ms]

One way to generate correct tax calculations is to have tax override for specific collections. You can then add products to such collections and keep those hidden.

Frankly, this is a very daft solution from Shopify.  Ideally, it should support all the various tax classes, but instead it just bundles in a single tax rate. The problem with the above approach is reconcilliation with accounting systems, as the order export will not match the tax rates. Unless you manually do this line by line. For us being a B2B wholesaler, its unnecessary manual work.

Just counting days to get off shopify and have a better platform. 

[FrancisByng]

@pb-ms

I saw Victor's advice to you about the "Collections" work-around but it doesn't help much as I cannot report the Revenue and Taxes from selected Collections.

Is it cheeky to ask you which package you hope to move to? 

FB

--

[Victor]

Hi @FrancisByng,

I don't believe this is the perfect solution, but when you export orders via CSV, the file will include a breakdown of each tax rate that was included in the order, rather than lumping them together. I tested this on my own staff store just now and can show you an example.

I bought two products from my store—bananas, which are not included in any override and therefore come with the default tax charge at 20% VAT, and some apples, which I applied a tax override for of 10%. You can see the two differing tax rates applied to each product here in the order:

I then exported the order to CSV, and in the file both tax rates and the amount charged for each appeared here:

Granted, this data does not show you which products were charged at which tax rate, but it does show you for each order how much money was charged at each tax rate, so you could use this data to total up how much was charged at differing tax rates for numerous orders.

I hope this is of some use to you. Please let me know if you've further questions.

Kind regards,

Victor | Shopify Social Care