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.

[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

[nssdw]

Hi Victor,

This is such an important thread. Thanks for maintaining it.

I am under the £85k threshold and should not be charging VAT, however, when I go to edit my United Kingdom Tax Settings, I am unable to edit the base tax rate. Please help.

[Victor]

Hi @nssdw,

Thank you for your kind words and I'm glad to hear that you've find this thread useful. From the page you've shown in your screenshot, you'll want to press the three dots over on the right and you should then see a "Remove" option:

Once this is done, customers in the UK should not be charged VAT when making a purchase on your store. Please try this and let me know if you experience any issues.

Kind regards,

Victor | Shopify Social Care

[WoodyBrighton]

Hi Victor,

Is there any update on fixing the coding error in Shopify for international sales?

When "my prices include VAT" is checked, the base export price should calculate = domestic price / (1 + dom VAT rate).  But Shopify maths is wrong and it continues to include the domestic tax when selling to an international customer.

We need this fixed ASAP!

thanks

Andrew

[Victor]

Hi @WoodyBrighton,

Thank you for getting in touch. If your prices are set to be tax-inclusive, customers placing an order from a region where you do not charge taxes will still pay the full listed price of the items in their order, albeit with a tax rate of 0% being shown during checkout and in their order confirmation. At this time, it is not possible to have your taxes included in the prices of the product and then have customers in non-taxable regions pay less for the order (without the use of an app such as Multi Country Pricing).

I know that the ability to do this within Shopify is a popular feature request and our development team have been made aware. I will be sure submit your feedback as part of this request.

Kind regards,

Victor | Shopify Social Care

[WoodyBrighton]

Victor - thanks. It is not a feature request, it's a maths error in Shopify.

It is a critical coding error which prevents Shopify users from selling to international customers.

Can you please escalate to the critical problem team, not some product request team. Shopify is not currently working!

thanks

Andrew

[Paul_M-77]

Could not agree more!!

"It is not a feature request, it's a maths error in Shopify.

Can you please escalate to the critical problem team, not some product request team"

[Victor]

Hi @WoodyBrighton,

As mentioned before, the listed price of an item will still be charged to all customers if you have prices are set to include taxes, regardless of whether or not they are set to pay taxes on the order or not. There are not pre-tax and post-tax price points when you have taxes included, only the singular listed price. I of course understand completely why this would be a desirable option, but the Shopify system does not currently allow for this.

If you are seeing customers who are not due to pay tax having a tax rate above 0% appear on their orders, irrespective of what the cost of the product or their order is, then that would be an error. Please let me know if this is the case.

Kind regards,

Victor | Shopify Social Care

[WoodyBrighton]

Hi Victor,

Thanks. Yes, I confirm 100% that it is an error.

Work with me through an example:

- A Shopify store in Australia will use the following settings: "My prices include taxes" is checked; Australian tax = 10%; and tax for most export destinations will be 0%, for example New Zealand for most stores will be set to 0%

- Please choose ANY Australian store running on Shopify (sure, Shopify is not doing very well in Australia, pick ANY one)

- Select an item and add to your cart

- Go to check out using an Australian address

- You will see price, for example, $100 and it will say "Includes Tax of $9.09" is included (being 10%)

- ie to work out the $9.09 Shopify has done the correct maths, that is Tax = Price - (Price / (1+tax rate))

- so far so good!

- now change your address to New Zealand

- You will see the text "Includes tax of 10% being $9.09" is removed, good

- But, you will also see that the price remains at $100, which is the error, bad

- The correct price should be Export Price = Price / (1+tax rate)

- Please repeat for 5 more Australian stores, you will see the same error every time (and understand why Shopify is not popular in Australia!)

This is not a feature request, the feature is very much there and it partly works.

- Shopify correctly calculates the tax for a domestic sale.

- For an export sale, Shopify does correctly remove the text about the tax being included.

- But it does not calculate the price correctly. It's just a math error in working out the export price.

Can you please escalate this error to the most senior person you can. Someone must have some pride in the product and be willing to fix this.

Really appreciate you taking a good look at this.

thanks

Andrew

[Paul_M-77]

Exactly this for all UK stores as well - with the slight difference that sales tax is 20% for most goods

But the logic of the maths (and the error) is identical and really frustrating...

[Victor]

Hi @WoodyBrighton,

I agree with you on the reasons why this would be beneficial, and can sympathize with your opinion on considering this an error rather than a feature request. However, the fact that the tax-inclusive price of a product is not reduced despite the customer being exempt from tax is the way our system works and our developers are aware, as it was built this way. This fact is referenced in our Help Documentation on tax-inclusive pricing:

If you set a customer to be tax exempt but you use tax-included pricing, then the customer will still be charged the full listed product price.

As I've mentioned before, I understand completely why this is disappointing to those who sell abroad and wish to charge their international customers less for their products, and I have consistently submitted feedback provided by yourself and others on this issue to try and raise awareness of the demand for this change. I hope on a personal level that this will be considered and will be sure to update this thread if and when a change is made, although at this time I do not have more information to share.

Kind regards,

Victor | Shopify Social Care

[WoodyBrighton]

Hi Victor,

OK, we are agreed there is a coding error in Shopify.

We also agree that this error is documented in the help docs.

We agree this Shopify coding error prevents people selling abroad, as overseas sales are incorrectly charged domestic VAT.

We agree that you've sent this feedback to wherever it goes, thanks for doing that.

It's now been 4 months. 

Can you kindly provide an indication of when this error may be fixed, if at all?

Is it true that Shopify has stopped development of the base Shopify platform? Is it true that legacy Shopify will be turned off and customers pushed to Plus? When is this planned?

thanks

Andrew

[Victor]

Hi @WoodyBrighton,

The issue you and others have referred to is a design in our tax system and I have confirmed with our taxes team that this is intended behaviour, not an unexpected error. I do of course appreciate why this is problematic for merchants operating in countries where prices are tax-inclusive who also wish to sell internationally, and have submitted numerous pieces of feedback to our development team as a result. As a member of our support team, I am able to communicate issues and requests I hear firsthand from merchants but my influence is limited. At this time, I do not have an update on when or if this change will be made, but if I learn of any developments I will be sure to post in this thread with information as it becomes available. 

Shopify does not intend to force non-Plus merchants onto our enterprise plan, and the platform available to merchants through our standard plans is not going to be made unavailable. Rather, the platform continues to evolve with new features and improvements over time. Shopify caters to both small and large businesses and there would be little sense in denying use of the platform to the many SMEs that use the platform to run their businesses. 

Kind regards,

Victor | Shopify Social Care

[thebluehound]

It is incredibly frustrating that my shop based in the NL will now also lose customers in the UK after Brexit since they will have to pay VAT (and Shopify can't work out a system that deducts VAT at check-out).  The same anger my US customers voice every time they have to pay VAT.  By viewing other threads, I see this issue has been brought up for several years.  I don't think your 'Tax Team' fully understands the cost to SMALL businesses.  I will also ask that this be escalated. All the apologies in the world won't help a struggling business during corona-times.

[Victor]

Hi @thebluehound,

Thank you for your candid feedback and I appreciate the frustrations that this issue can cause. Whilst I also understand that this is a long term feature request, I do know that our development team are aware of the requests we've had to make selling internationally easier for UK and EU-based merchants, and my colleague Cole from our product team provided a brief update on the situation here. As he mentioned, Shopify hopes to offer merchants greater control in terms of international prices and taxes in 2021, and this is something currently being looked into and worked on. I will be sure to stay personally updated with new features when they come and will communicate any changes here, as I know there is significant interest.

Kind regards,

Victor | Shopify Social Care

[thebluehound]

Thanks and while I can appreciate the thought, 2021 is a long ways off....especially after many years of requesting a simple change. I will guarantee that in 3 months, many of us will be out of business. These are COVID times. While you focus your attentions on US accommodations, you’ve almost always ignored you EU customers. You and your team can take pleasure in your lack of attention to your EU customers. Yes, if we were larger companies, we would certainly move to another way of selling. We thank Shopify for their continued non support over the years.

[steph68a]

Hi

I'm not sure how to go about this and Shopify doesn't seem to have the option. 

I am running my business in the UK and I am not VAT-registered (and do not need to be) yet there isn't the option on Shopify to not 'collect' VAT from United Kingdom?

By heading to Settings > Tax > United Kingdom > Edit it says I am 'collecting VAT in the United Kingdom' - of which I am not. It also tells me to input a VAT number, which I don't have because I am not registered. 

I've read through the little guide above and noticed it says to set Base Tax at 0% - which isn't the same as 'not collecting' but nevertheless I thought I would set my site to this, to save any impromptu mistakes. But it appears I don't have the option either. 

I have gone to the same menu as above and I do not have a section called Base Taxes under United Kingdom,  but I do for the Rest of the world profile.

What's going wrong or what am I doing wrong? 

This is confusing as it is, let alone adding Brexit to the mix. 

IGNORE THIS: 

I've just found the Remove function reading back through the comments - must have missed it the first time. Little disappointed this isn't shown on any of the main Shopify guides though. I've been searching for an hour for the solution via google, shopify and random forum posts! 

[Victor]

Hi @steph68a,

I'm glad to see that you were able to get this resolved but am sorry to hear that the answer was so difficult to find! I'll be sure to pass this feedback on. If there's anything else you need help with, please let me know.

Kind regards,

Victor | Shopify Social Care

[Victor]

Hey folks,

I am happy to be able to provide an update to you all today, as I have just learned that we have launched a new tax feature that allows merchants to include or exclude taxes based on the country the customer is based in. This means if you list prices as tax-inclusive on your store, with this feature you can allow customers in countries where you do not collect taxes to pay the tax-exclusive price. There is an example of how this feature works on our Help Center:

For example, Gabriel lives in a region with 10% tax, uses tax-inclusive pricing, and sells to several regions outside his own. He activates the Include or exclude tax based on your customer's country. He sells a product for $100.

- In his own region, the product costs $100. Using the formula Tax = (Tax Rate X Price) / (1 + Tax Rate), the product portion of the price is $90.91, and the tax portion of the price is $9.09.

- In regions where Gabriel is not required to charge tax, the product costs $90.91, the product portion of the price.

- In a region where Gabriel is required to charge tax at a 20% tax rate, the product costs $109.09. This price is calculated by applying the region's 20% tax rate to the product portion of the price.

This feature is currently in Beta, meaning it has only been rolled out to a limited number of merchants at this time. The rollout will continue in the coming weeks and I will seek to post updates when they come.

Kind regards,

Victor | Shopify Social Care

[thebluehound]

Thanks,,so how do we know if we can be part of the beta program? I’m missing the xmas selling season and my shop in the NL is shut due to lockdown

[Victor]

Hi @thebluehound,

Merchant cannot opt into the Beta rollout, and has currently only been made available to a limited percentage of merchants. Once the Beta period has concluded the feature should be made available to 100% of merchants. I will be sure to post an update here when that is the case.

Kind regards,

Victor | Shopify Social Care

[Oblotzky]

Thank you so much for that update! This seems to be exactly what I've been looking for ever since I opened my store. Glad it is finally being implemented!

[Teslyar]

Hi Victor,

Thank you for pushing this through, however, It doesn't actually work for the EU. (Disclosure: I have beta access)

It does not allow us to show the tax inclusive price on the product page which is against EU regulation.

For example, if my address is in Germany, my VAT rat is 16%. I am also VAT registered in Italy which has a rate of 22%.

Product A has an inclusive price of $100.

Scenario 1: A Germany customer will see $100 on the product page and at checkout ($86.21 rev + $13.8 tax). All good.

Scenario 2: A customer from Italy comes along and sees $100 on the product page, however when they get to checkout, they will see and have to pay $105.16 (($100/1.16)*1.22). This breaks EU protocol of not showing the price including all tax on the product page. The Italy customer can now report me to the EU Commission.

This is how it should work for this function to have the desired affect (using same example as above):

1: A customer from Germany will see a price of $100 and at checkout will see the same price ($86.21 rev + $13.8 tax). 

2. A customer from Italy sees a price of $100 on product page and when they get to checkout the price is $100. The product price is $100/1.22 = $82. The amount of tax payable to Italy is (($100/1.22)*0.22=$18). That way you show the tax inclusive price on the product page and at checkout. You have no issues with EU regulation and everyone is happy.

3. A tax exclusive country will pay $86.21 ($100/1.16) at checkout as the home's base tax rate does not apply.

You just need to make a slight modification to your current beta implementation formula. If you do so, you will comply with all EU regulation and all EU customers will finally be happy.

Please share the above calculations with your development team.

The alternative is if the product page price changes based on customer IP address. If this is done, your calculations are ok as the product page price will be the same as checkout.

I look forward to hearing from you. You can switch the above examples with the UK, or any EU country.

Kind regards,

Yuriy

[Victor]

Hi @Teslyar,

Thank you for your feedback and detailed breakdown of the issue. My understanding is that whilst this initial release allows customers to see the correct prices with the appropriate taxes at checkout, the issue you have raised is a known one and is something being worked on by our development team at this time. My colleague Cole also posted about international pricing in another thread:

We are working hard on adding other global selling capabilities in addition to the above, and you will see more things around managing international pricing and import duties / taxes in 2021 as well.

This is a topic I am personally paying close attention to, and I will continue to provide any updates here when I have them. I have also gone ahead and shared your comments with our development team as merchant feedback plays a large part on how we develop and build features for the platform. Thanks again for providing this information to me here.

Kind regards,

Victor | Shopify Social Care

[Stefano555]

Hi, according to the new UK rules, the VAT collect applies when you sell for a value less then 135£. In this case a 20% vat has to be shown in the cart and in the invoice. If, instead, you sell for more than 135£, the VAT must not be collected. So, I have activate the new Shopify UK VAT COLLECT system and to see if that works I made a simulation and put in our cart a product worth 165Euros which is more than 135£. I would so have expected the VAT to be zero (because according to the UK rules, no VAT has to be collected), but instead a 20% VAT was shown in the cart. Does that mean that Shopify UK VAT collect system does not apply the 135£ rule? Is that a mistake?

[RobS]

@Stefano555 I have been trying to raise this issue on another thread. Bear in mind that you will need to be registered for VAT in the UK and complete a UK VAT return to collect the tax and you'll have to decide whether the additional admin is worth it. If you aren't registered with the UK tax authorities then as far as I can work out you won't be able to accept orders under £135 (I'm not 100% sure if this £135 is including or excluding taxes, presumably excluding).

https://www.gov.uk/government/publications/changes-to-vat-treatment-of-overseas-goods-sold-to-custom...

For those of us in the UK the same will apply from July 2021 when selling into the EU.

As far as I can tell, Shopify are unaware of or are just ignoring this issue. I don't think the recent changes to the tax settings can handle the flexibility that is required.

[Stefano555]

Hi Robs. I am glad I am not the only one to have noticed this issue. It think it is very easy for Shopify to fix it. But if Shopify doesn't, there is no way for us, users,to fix it. That would mean that the checkouts and invoices of out-of-UK-onlineshops selling into UK will not be compliant with UK rules. Infact, at the moment, Shopify does not allow to apply UK VAT on sales lower than 135£ and to exempt VAT on sales greater than 135£ .

Regarding the UK VAT registration required for sales into UK lower than 135£, I still do not understand if the yearly 70000£ distance-selling thresholds applies or not. If it does, there is no need to have a UK VAT number below an yearly turnover of 70000£ online sales. If it does not apply, then that would mean that if, to make an example, your annual average sales are only 100£, then you have to register for a UK VAT and transfer 20% of your 100£ sales to the UK tax office. Which is quite crazy!!!

[RobS]

Hi @Stefano555, as far as I can work out you would need to register in the UK for VAT as soon as you take a sale that requires VAT to be collected - I don't think the 12 month sales threshold that UK businesses have applies. I know it sounds crazy!  Check with your accountant though as I am a mere business owner and not a tax advisor 🙂

What we think we will do, once the Brexit situation becomes clearer (if it ever does!!) and hopefully the COVID border problems sorted, is sell to our EU customers using the Duties and Taxes Paid services offered by our shipping company. It's going to cost a load more to ship to Europe but that way our customers will pay everything up front to us, we don't need to worry about ex-VAT prices on the website or the 150 euros / 135GBP limit....we just need to build in the extra costs we will incurr into our shipping rates. It won't be economical for EU customers to place small orders with us anymore as the shipping we will be charging will be a lot, but the mix of products we sell has quite a lot of high-value items and the impact of higher shipping costs on these should be less noticeable. Each store is going to have to look at their own product mix, average sale value and market to decide what way is going to work. DTP might make no sense for some stores.

[thebluehound]

So my confusion continues.  I'm based in the NL and sell primarily to EU countries.  With the new tax option, my checkout still shows a dutch 21% BTW/VAT collected as a component of the check-out product price (individual webshop products are priced tax inclusive and only at check out is the tax shown as a component of the price).  I am a small company, so do no more that €35,000 in any EU country, therefore, I thought that I collect all of the VAT and submit to the Dutch gov't regardless of which EU country my customer is based.  Is this not right?

As for the conversations about various tax rates within the EU (selling EU to EU) not showing correctly, is this in reference to larger companies that sell more than €35,000 per country?  This is one thing I'm not really understanding.

Selling outside at the EU (excluding the UK), with the new tax option, the price shows reduced only at check-out but with a note saying the price has changed to not include tax.  Is this allowed for an EU based company?  Can prices 'just be different' at the end without showing a line that reflects the VAT being deducted?

The UK, what can I say.  I will sadly just had to block sales to the UK.  For a small company, its way to complicated for me to deal with.

Thanks, Joe