Manage your UK taxes

Note

This guide is for merchants who sell in the United Kingdom. It's your responsibility to consult with local tax authorities or a tax professional to verify that you charge your customers the correct tax rates, and to ensure you file and remit your taxes correctly.

After you update your store to use registration-based UK tax features, you can manage your tax settings, including your registrations, overrides, and customer exemptions.

Manage the regions in which you're registered

You can add, delete, or change your registrations or account numbers at any time.

Steps:

1. From your Shopify admin, go to Settings > Taxes and duties.

2. In the Regional settings section, click United Kingdom.

3. In the Regional settings section, do either of the following:

   1. To set up a new VAT registration, click Collect VAT.
   2. To edit an existing VAT registration, click ....

4. Update your VAT information.

5. Click Save.

Override taxes

Sometimes the default tax rates don't apply to certain products. For example, certain types of children's clothing might be exempt from tax or have a lower tax rate. If the default rates don't apply, then you need to create an override.

Create a product tax override

Creating an override for products is a two-step process. First, you create a collection that includes the products that have a different tax rate. Then you specify to which region the override applies, and the tax rate to use.

Steps:

1. Create a collection by doing the following:
   1. From your Shopify admin, go to Products > Collections.
   2. Click Create collection, and then enter a name for it.
   3. Under Collection type, select Manual.
   4. Click Save collection.
2. Create the override by doing the following:
   1. From your Shopify admin, go to Settings > Taxes and duties.
   2. In the Countries/regions section, click the country or region to create an override for.
   3. In the Tax overrides section, click Add product override.
   4. Select the collection.
   5. Select the region where the override applies.
   6. Enter the tax rate for the collection in that region.
   7. Click Save.

Create a shipping tax override

Taxes on shipping charges can also be overridden. Shipping tax overrides take effect regardless of whether you have a tax policy in place on your Taxes and duties page.

Steps:

1. From your Shopify admin, go to Settings > Taxes and duties.

2. In the Regional settings section, click United Kingdom.

3. In the Shipping overrides section, click Override.

4. Select the region where the override applies.

5. Enter the tax rate for shipping in that region.

6. Click Save.

Manage your tax calculations

You can manage various settings that determine how tax is calculated on your products. For example, you can set whether taxes are included in your prices, whether to charge VAT on digital goods, and whether to apply tax to shipping costs. You manage these settings on the Taxes and duties settings page. Refer to Tax overrides and exemptions to learn more.

Steps:

1. From your Shopify admin, go to Settings > Taxes and duties.

2. In the Tax calculations section, select the options that apply.

3. Click Save.

Tax rounding

Previously, taxes were rounded at the invoice level by calculating the taxes on the order's subtotal, and then rounding the results. After you update your settings to use UK tax features, tax amounts are rounded at the line-item level. In this case, the total tax value is calculated by applying the tax rate to each line in the order, rounding the result, and then adding these subtotals together to arrive at the total value of the order.

Rounding taxes at the line level improves the calculation of different tax rates and makes it easier to calculate taxes for orders that include taxable and non-taxable products.

Example of tax rounding at the invoice level and at the line-item level

A customer places an order for 42 different items, each with a price of 14.99 GBP and subject to 18% tax. The line item tax for each product is determined by multiplying the price (14.99 GBP) by the tax rate (0.18), for a result of 2.6982 GBP.

Previously, the tax of each line item was added together, and the total was rounded. In this case, the added total was 113.3244 GBP, which was rounded to 113.32 GBP.

Tax is now rounded at the line-item level, which means the tax amount is rounded for every product individually. The line-item tax amount of 2.6982 GBP is rounded to 2.70 GBP, which is then added together to get the total. In this case, the tax total is 113.40 GBP.

Reverse Charge (EU/UK) Exemption

The reverse charge (EU/UK) exemption fully exempts VAT on any order shipped to a B2B customer within the European Union or the United Kingdom, provided the destination country is different from the country of the fulfillment location. For example, the exemption applies to an order shipped to a B2B customer in Ireland from a fulfillment location in France. This exemption is based on your fulfillment location, not the store address in your General settings. The reverse charge exemption applies on orders from the European Union to other EU countries and on orders from the European Union to UK countries. It doesn't apply on United Kingdom to European Union orders, or on United Kingdom to United Kingdom orders.

When an address in the European Union or the United Kingdom is detected for a company location or a customer, the Tax ID field automatically becomes the VAT number. When the tax exemption is applied, a note stating Reverse Charge Mechanism: Recipient responsible for VAT is added to the VAT invoice.

An active fulfillment location in the European Union is required for the EU/UK reverse charge exemption to work properly. If you have multiple fulfillment locations, then you can change the order's fulfillment location to another location outside of the customer's shipping country to allow the exemption to work as intended.