Shopify Tax for EU and UK

[YH14]

I am based in the EU (France) and also sell to the UK. I am VAT-registered both in France and in the UK, and charge sales tax to all EU and UK customers. As of today, Shopify have introduced Shopify Tax for merchants in the EU, but so far I can’t really see what the difference is with this service to what I currently have, other than I will now be charged for it if my turnover goes over a certain threshold. I already produce VAT-compliant invoices which are downloadable via a link in my shipping confirmation emails. These invoices also need to contain additional, customisable information to make them useable for shipping, but I see no way to customise the Shopify Tax invoices, there is no template in the notifications section. So what I currently do seems to be better than what they are offering. Can anyone enlighten me as to how this set-up is better than what was previously offered by Shopify?

[shubify]

Hey there- hope this helps.

Shopify Tax today offers VAT invoices (required for x-border orders), smarter calculations (proportional shipping, smart product rates, auto-updated rates, more accurate reports because VAT calculations are better), and liability insights for merchants as they expand into new regions that tell them when/where to register to collect VAT.This product will be improving over time with more features/functionality, but you should base your adoption of it on what it has now- like any smart customer would

Shopify Tax is completely free until Jan 1, 2025- you can switch at any time, and there’s no commitment to be on Shopify Tax. It’s also free for your first 100k of GMV, every year. After that point, the pricing structure is laid out in the email, but Shopify has been intentional about putting caps on percentages and overall fees to make this service merchant friendly.

In the end, this product gets you VAT compliance without needing to think about it as you grow, without you needing other solutions for these tasks, all natively.

If your current solution is better and cheaper, you can always switch- but my recommendation is to try it out, and if you don’t see the value, downgrade before Jan 1st, 2025 so you don’t get charged. In your case, if your invoice solution is superior today, definitely continue using that until Shopify Tax invoices improve enough to cover your needs.

[YH14]

Yes thank you, you haven’t really told me anything that I haven’t already read on the Shopify help pages. So to clarify - Shopify already offered VAT calculations based on ship-to country, with overrides for non-standard rates (in my case for books). So was the previous set-up equivalent to Basic Tax? The issue is that for Shopify Tax to work correctly, I would have to go into every existing product and update the product type, then delete all the overrides. If I then find that I prefer the previous set-up, or if Shopify Tax doesn’t correctly identify items on different rates of VAT, then I have to go in and set up all the overrides again.

Not sure how VAT calculations can be “better” than those used previously, when they are the same. While proportional VAT on shipping is, on paper, of interest as it can lower your VAT bill, in practice it makes it very difficult to calculate and report. I am a little worried about switching to the new system and then finding that your reports don’t show me the breakdown correctly in a way that I can report it accurately on the OSS website. But I will give it a try and see.

Finally - regarding VAT invoices. Invoices, whether a business is VAT-registered or not, are mandatory here in France and there are legal requirements about what should appear on an invoice. So I have always produced invoices for all customers, cross border or not, even before I registered for VAT. I cannot find any template in the notifications section for the new Shopify VAT invoice, so how exactly do I add my logo to it or customise it to add the legally required information or just simply see what it looks like?

[shubify]

Let’s start with calculations. The value you get is that you never have to think about calculations, rates and regulation changes, or anything in that realm again- it just works and updates automatically.

You have three choices:

1. You can keep your current setup with Basic Tax and use your overrides for each country. If you’re comfortable with that, great. You can update rates manually for countries as regulations change; this happens pretty infrequently, but it’s yet another thing to stay on top of. This is the free option.
2. You can use Shopify Tax and your overrides, since Shopify Tax preserves them. For orders with overridden VAT, Shopify Tax will not kick in. the calculations will stay the same, you will not have an invoice generated (if you’ve turned it on), and you will not be charged for the order. For orders without overrides, Shopify Tax will calculate the right amount based on your category.
3. You can use Shopify Tax and update your product categories. Now, they’ll calculate the right VAT based on the category and destination.

Regarding invoices- you can try them out by turning them on in Settings > Taxes and Duties > European Union or United Kingdom. There is a toggle to turn on/off invoices, and an option to upload a logo. Once turned on, invoices will show on the order page in admin, and on buyers’ order confirmation pages.

[YH14]

Thanks, I understand a bit better now - but still not completely.

However, regarding invoices - this still isn’t clear. Where can I see what an invoice will actually look like? As I have said now twice, I need invoices to be customisable so that I can add legally required elements, both to meet French law and also for international shipping. As there is no invoice template in the Notifications section in Settings, do I assume that I cannot add any additional text or information to the supposedly compliant invoice? If so, then I’m sorry, but your invoice will almost certainly not be compliant with French law, so is useless to any French merchant.

Also, when this invoice is generated, assuming that I want to use it for an international shipment, how do I print it off? Is a pdf available somewhere? None of this is explained anywhere.

I should also point out one major flaw in your tax reporting that Shopify Tax does not address and which means I am unlikely to use it. If I use Shopify Tax, then proportional VAT on shipping will be applied. The problem is that for actual VAT reporting, businesses are required to report the pre-tax sales amount, and not just the VAT payable. The government online reporting systems then calculate the VAT due based on the figure you enter. Your tax report shows only the amount of VAT by country and then by rate, it doesn’t show the net sales value for the rate. This means I have to go into other sales reports (sales over time) to figure out the net sales value. If proportional VAT is applied, will this also be reflected in the shipping amounts and tax amounts shown in the sales reports? So for example, if I do a report to show me only sales of books (which are typically on a lower rate of VAT in all countries), will the shipping be proportionately calculated and added to the report so that I get the correct amount of VAT? As customers often buy other products with books, this is important.

A further clarification regarding Basic Tax - can I ask again, is this exactly the same as what Shopify have offered up to now? i.e. you say that if I use it, I will need to update rates as they change. Up to now, the system has always updated the standard VAT rate for each country, and it was only other rates that had to be manually updated. So are you saying that this will no longer be the case for Basic Tax, and I will have to update all rates manually? Or will the standard rate still be updated by Shopify?

Please advise as I’m finding your answers are not really giving me a clear picture, thanks.

[HampusMalmstrom]

The shipping VAT does look quite weird, because it’s showing the average VAT percentage rather than specifying how much of the shipping VAT there is per VAT bracket. Not sure if the tax report shows this differently?

A basket with both 6 % VAT and 25 % VAT products gives me a shipping VAT of 8,72 kr. 12,402 %..

But in reality it should be 2,80 kr. 6 % and 5,92 kr. 25 % for the shipping

[YH14]

OK thanks for this, that’s interesting. The actual tax report only shows a total amount of VAT accrued per rate per country for a given period. So when I do my quarterly OSS declaration, I don’t use that report because it doesn’t give me the net sales value on which that VAT amount has been calculated. I use the Sales Over Time report and do it country by country and also filtered by category to get the amounts for the different rates. At the moment all my shipping is charged at standard rate, so nothing appears in the tax column for lower-rated items. This is the problem that I’m trying to explain to Shopify Staff member above and what I’m trying to understand - whether this will now all be calculated and will appear on the sales report. Obviously it would be good to lower my VAT bill a bit, but not if it’s going to cause me headaches trying to work out the net sales figure I need to report. I don’t have any orders with lower-rate VAT yet in order to run a report and see how it appears. The best solution would simply be for Shopify to add the net sales value to the tax report, then it would much quicker and easier to use.

[shubify]

Hi- thanks for clarifying.

1. I’m attaching a sample screenshot of a VAT invoice that Shopify generates, In case it’s helpful. VAT invoices will show up on your customer’s order confirmation page as a downloadable PDF and will also show up on your orders page in admin as a downloadable PDF that you can print and mail if necessary. You cannot yet add any text to the invoice but this is functionality that we are looking to add in the future along with various other invoice improvements.
2. The tax report will show the proportionally calculated shipping VAT so that you get the total correct amount of VAT. We are looking to improve reports as a whole early next year. So if it’s not a good fit right now, it might be worth reevaluating when we make those improvements.
   1. “The best solution would simply be for Shopify to add the net sales value to the tax report, then it would much quicker and easier to use.” Noted!
3. Basic tax will be exactly the same as what Shopify has offered up to now. The rates that you will need to change are for products that you have set overrides for or those with special categories. Standard rates will generally be updated automatically as they have been in the past.
   
   

[YH14]

OK thanks for these clarifications. Here are my replies:

1. Thanks for the invoice. Unfortunately, as I suspected, this invoice is of no use to French merchants, as it does not contain the legally required information that we need to show. A French merchant is required to include their company registration details, VAT number and activity code. For invoices to UK customers I am also required to show my UK VAT and EORI numbers. This requires customisable invoices that are different for different markets. A single, basic invoice for all markets like this is no good, so I would still have to continue using my paid app to produce them. I assume that merchants in other countries will also have local legal requirements as to what should appear on an invoice, so this may be an issue for them too.

2. Sorry, I wasn’t talking about the tax report showing the proportionally calculated shipping, but the sales reports. As I have said, the actual tax report is useless as it doesn’t show the net sales value. When reporting VAT, we don’t just tell the authorities how much tax we owe and then pay it. We tell them our sales value and they then tell us how much VAT we owe. So producing a tax report which doesn’t show the net sales value is of no use. So thanks for noting this comment, hopefully Shopify will add this element to the tax report to make it useful.

3. Noted regarding Basic Tax - I think then that I will revert to that for now. The new Shopify Tax is not fully developed yet in a way which would work for French merchants, or certainly not for me anyway as I prefer to stay fully within the legal requirements. Fines here can be potentially very high if you don’t comply.

[jgd1955]

Hi - I help manage the Shopify store climb-europe.com which sells mainly maps and giuidebooks which are zero rated for sales in the UK. We recently switched to Shopify tax and it seemed to work well initially but randomly we get orders where 20% VAT has been added for a sale of a guidebook in the UK. We categorise the products as Books in media.

Any ideas why that should be happening?