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Regional Support: Taxes (UK)

Victor
Shopify Staff
Shopify Staff
1586 151 353

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:

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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:

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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:

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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:

 

image1.png

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: 

If you have a question or comment to make about managing your taxes with Shopify in the United Kingdom, please post it below.

Victor | Social Care @ Shopify 
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Replies 112 (112)
JKD19
Tourist
25 0 1

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

Vat.png

 

thebluehound
Explorer
44 0 9
Please read Victors (moderator from the other thread) response. It’s in beta and will only be accessible to the ‘invited’ shops....for now
Teslyar
Tourist
9 0 1

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
Shopify Staff
Shopify Staff
1586 151 353

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

Victor | Social Care @ Shopify 
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PMckay777
Tourist
6 0 6

Yuriy is my new hero

Stefano555
Tourist
4 0 3

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?

JKD19
Tourist
25 0 1

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

Stefano555
Tourist
4 0 3

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!!!

 

 

RobS
Shopify Partner
24 0 11

@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
Tourist
4 0 3

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
Shopify Partner
24 0 11

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
Explorer
44 0 9

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

 

Stefano555
Tourist
4 0 3

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.

FrancescaVivida
New Member
2 0 0

Hello,

I have tried reaching out through Shopify chat service for help with the below situation, but the app solutions presented do not do what we need to be tax compliant in the UK.

Our problem is that we sell on our store both Adult and Childrens product. Adult sales is subject to 20% VAT, children's 0%. If in a sales order 2 items are sold, 1 adult, 1 child, VAT should be applied to the shipping cost. If only a Childrens item is sold, tax should not be applied. After going through all of the settings in the back-end, and speaking to a shopify help desk representative, I couldn't find a solution. 

Do you have any suggestions for apps that could handle this, if Shopify cannot? On a monthly basis I am receiving complaints from our Accountancy team that we are not currently compliant for these sales, and I really need to find a solution. There are retailers that have been able to set this up correctly in the UK trotters.co.uk being an example of this.

Apps already suggested by shopify helpdesk: 

On the other hand, to make this happen like on the other shop you can use third party applications like Advanced Shipping Rules or Tax Exempt Manager.

Thank you!

Francesca

Victor
Shopify Staff
Shopify Staff
1586 151 353

Hi @FrancescaVivida,

Thank you for getting in touch and for detailing your situation. I have reached out to our taxes team on this, and they have told me that Shopify's automated tax system should know how and when to apply shipping taxes to an order dependent on the taxable items in the customer's cart. For example, if you set all of your children's clothes to be non-taxable, no tax should be charged on shipping at checkout. If your customer orders a mix of adults and children's clothing, the amount of tax charged on the order's shipping will be proportionate to the taxable and non-taxable products in the cart.

I hope that explains things, but please let me know if you've more questions.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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FrancescaVivida
New Member
2 0 0
Hi Victor,

An added level of complication is that these products are only zero-rated in the UK, we are also registered for Tax in Germany, and these products are not zero-rated there.

I have not selected the setting you have suggested for this reason.

Thank you!

Francesca
SafeHands36
Tourist
10 0 2

Hi Victor

I think I have the same problem but opposite way round to Francescas! 

We are a UK company only selling to the UK.  We have some items which are not Taxable, and some items which are.  If the shopping cart contains non-taxable and taxable items VAT is added to the shipping charge correctly.  However, as soon as you take the Taxable item out of the cart VAT does not get added to the shipping charge.  What do I need to do to rectify this?  I should always be charging Tax on shipping regardless as to the tax treatment of the item in the cart. 

Please help!

Victor
Shopify Staff
Shopify Staff
1586 151 353

Hi @FrancescaVivida,

Okay, I see. As far as you know, does this mean that customers in Germany should be paying taxes on children's clothing, and also paying taxes on associated shipping costs when ordering children's clothing?

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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Victor
Shopify Staff
Shopify Staff
1586 151 353

Hi @SafeHands36,

Thank you for outlining your situation. Do you require taxes to be charged on shipping regardless of whether the item(s) in the cart are taxable or not? Or does the situation you've described only arise when the customer adds both taxable and non-taxable items in the cart, and then once the taxable item(s) are removed, the shipping taxes are removed when they should be kept? I just want to make sure I fully understand what you want to happen, and what is happening.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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SafeHands36
Tourist
10 0 2
Hi Victor

Thanks for getting back to me. We require taxes to be charged on shipping regardless of whether the item(s) in the cart are taxable or not.