UK tax reference
The Brexit Transition Period ended on December 31, 2020. As a result, effective January 1, 2021, new laws apply to sales between the UK and the EU. This change might make it necessary to review and update your tax processes if you're one of the following:
- A UK merchant - you're a merchant whose business is located in the United Kingdom.
- An EU merchant - you're a merchant whose business is located in a European Union member country other than the United Kingdom.
- A non-EU merchant - you're a merchant whose business is located in a country outside of the UK and the EU.
If you're a UK merchant and you sell to customers in EU member countries, or if you're an EU merchant and you sell to customers in the UK, then there are changes that have implications for several aspects of your business.
On this page
VAT
There are new UK VAT laws that came into force on January 1, 2021. These new laws affect both EU and non-EU merchants who sell to UK customers.
EU merchants benefit from simplified procedures that remove the need to register for VAT when they sell to customers in other member countries, unless their sales to customers in that member state exceed a certain threshold. Below this threshold, merchants are only required to register for a VAT number in their own regions, or not at all.
After the transition period, UK merchants who sell to EU customers and EU merchants who sell to UK customers can't use these simplified procedures. Merchants who sell between the UK and EU countries might require VAT registrations in additional countries.
| Merchant location | Changes and requirements |
|---|---|
| United Kingdom | The sale of goods from UK merchants to EU customers have become exports (the sending of goods from a country or customs union to outside that country or customs union) rather than dispatches (the sending of goods from one EU member state to another EU member state).
UK merchants might be required to register for VAT, and to account for import VAT in the EU. VAT registrations might be required across multiple EU member countries depending on a number of factors, including (but not limited to) your supply chain, the location of your customers, and where the goods are delivered. |
| European Union | The sale of goods from EU merchants to UK customers have become imports (the receipt of goods into a country or customs union from outside country or customs union) rather than acquisitions (the receipt of goods from one EU member state to another EU member state).
The UK VAT laws that came into force on January 1, 2021 result in new VAT requirements for sales equal to or less than £135 GBP.
|
| Outside of the UK and the EU | The new UK VAT laws that came into force on January 1, 2021 apply to the sale of goods from non-EU merchants to UK customers. Non-EU merchants who sell to UK customers might be required to register for VAT in the UK.
The UK VAT laws that came into force on January 1, 2021 result in new VAT requirements for sales equal to or less than £135 GBP.
|
Updating your tax settings
The updates that you need to make depend on how you currently manage your taxes.
Shopify Tax
If you use Shopify Tax, then your existing registrations will be updated automatically. New registrations won't be automatically added, and you won't be warned if you need registrations in other countries. If you're not sure where you're obliged to register, then contact a local tax professional.
Manual tax settings
If you haven't yet migrated to Shopify Tax, then your existing tax settings will not be updated. To update your tax settings, either update to Shopify Tax, or update your tax rates manually. Updating to registration-based tax calculations is a permanent change and can't be undone.
Tax services
If you use Avalara to manage your tax, then your tax settings will be updated there. New registrations won't be automatically added. If you're not sure where you're obliged to register, then contact a local tax professional. If you have questions about the details, then contact Avalara's support team.
Frequently asked questions
Where can I get more information about Brexit?
The best way to get information about how Brexit affects your business is by contacting a local tax professional.
What's a fiscal representative? Do I need one?
Fiscal representatives are local companies or persons that represent you when dealing with the local tax authorities. They're responsible for the management of your tax reporting and, in some cases, VAT debts.
Some EU member countries require you to have a local representative if your business isn't based in an EU member state and you sell to customers there. After January 1, 2021 UK merchants might be required to appoint a fiscal representative when selling to EU customers. Not all EU member countries require a fiscal representative, and requirements might be lower for ecommerce sellers.
If you're not sure whether you need to appoint a fiscal representative in an EU member state, then contact their tax authority or a local tax professional.
Do I need a new EORI number?
It depends. An Economic Operator Registration and Identification Number (EORI) is an ID code that's used to track and register customs authorizations, approvals, and decisions. Previously, one EORI number could be used for tax authorities in both the UK and other EU member countries. After January 1, 2021, separate UK and EU EORI numbers will be required.
If you import goods into the EU and you don't have an EORI number, or if you have an EORI number starting with GB that was issued by the UK, then you will need to apply for an EU EORI. If you need an EORI number for an EU member state, then contact their tax authority.
If you import goods into the UK and you don't have an EORI number, or if you have an EORI number issued by another EU member state, then you will need to register for a UK EORI. You can register for a UK EORI number with HM Revenue and Customs.
If you're not sure whether you need a new EORI number, then contact a local tax professional.
I sell digital products, does this affect me?
It depends. The VAT Mini One Stop Shop (MOSS) scheme has two variants. The union scheme is available for businesses established in the EU or with at least one branch in an EU member state. The non-union scheme is available for businesses that aren't established in the EU, and don't have any branches in EU member countries.
If you currently use the MOSS scheme to sell digital products, then contact your tax authority or a local tax professional to determine how to register for a VAT number.
How do I charge VAT in the UK if the order is over £135 GBP?
If you need to charge taxes for all orders placed from the UK, including those above £135 GBP, then do one of the following options:
- Add a physical location within the UK.
- Use a third-party app to collect duties and import taxes at checkout.
You can't use a tax override to charge UK VAT for orders over £135 GBP.
Do I need to change my terms and conditions?
Probably. After January 1, 2021, import VAT and tariffs might be chargeable on your products when you import or export goods between the UK and EU member countries. The two most popular international commercial terms, or incoterms, are:
- Delivered Duty Paid (DDP). This term indicates that the seller is assuming responsibility for any import costs, such as VAT and duties, that might be payable when goods cross borders. This option keeps your customer from paying unexpected fees or taxes on receipt of the goods, but DDP requires you to manage the import process, and might create VAT registration obligations.
- Delivered At Place (DAP). Also called delivered duty unpaid (DDU). This term indicates that the seller only takes responsibility for shipping the product, and requires the customer to pay any import costs, such as VAT, duties, and clearing fees. This option might keep you from having to manage the import process, but DAP creates unexpected costs for your customer and can result in delayed or returned shipments.
You're responsible for deciding which incoterms you use, but for most EU member countries, you're obligated to ensure that your customer is aware of all charges and taxes they might be liable for.
What's an HS code? How do I add one?
A Harmonized System (HS) code is a way to identify products being shipped internationally, so that taxes and tariffs can be accurately applied to shipments. The World Customs Organization offers resources to learn more about the system, and you can search to find your product's HS code here.
When you know your product's HS code, you can add it in your Shopify admin.
VAT calculation in Northern Ireland
Under Brexit, Northern Ireland (NI) has adopted a dual status and is considered part of both the EU and the UK tax regimes. To ensure proper cross border VAT collection, use the same tax service for both the EU and UK regions.
If you use Shopify Tax, then VAT is calculated based on the order's origin and its destination. UK VAT applies to orders from within the UK to customers in Northern Ireland. EU VAT applies to orders from within the EU to customers in NI.
| Order origin | Order destination | VAT applied at checkout |
|---|---|---|
| United Kingdom | United Kingdom | If you have a UK VAT registration, then UK VAT is charged. |
| Northern Ireland | If you have a UK VAT registration, then UK VAT is charged. | |
| European Union | VAT is not charged. | |
| Northern Ireland | United Kingdom | If you have a UK VAT registration, then UK VAT is charged. |
| Northern Ireland | If you have a UK VAT registration, then UK VAT is charged. | |
| European Union | If you have an EU VAT registration, then EU VAT is charged. | |
| European Union | United Kingdom | VAT charges depend upon on the cost of the order and whether you have a UK VAT registration.
|
| Northern Ireland |
| |
| European Union | If you have an EU VAT registration, then EU VAT is charged. |
As of July 1, individual country thresholds no longer apply. Instead, a single threshold applies for the entire EU.
- For customers in your home country, your local VAT rate is charged.
- For customers in EU countries outside your own, the rate is determined by whether you exceed the registration threshold.
- If your combined sales to all other EU member countries are less than €10,000 EUR in total, then you charge the VAT rate for your own region.
- If your combined sales to all other EU member countries are equal to or greater than €10,000 EUR in total, then you charge the VAT rate in your customer's location for all sales to other countries or regions.
A new One-Stop Shop scheme (OSS) is available as of July 1, 2021. The OSS scheme allows merchants to collect and remit VAT for sales in all EU member countries, rather than registering for each member state individually.
Merchants with locations in Northern Ireland (NI) use the OSS, not the Import One-Stop Shop (IOSS) scheme. Under Brexit, Northern Ireland has adopted a dual status and is considered part of both the EU and the UK tax regimes.
If you use Shopify Tax, then VAT is calculated based on the order's origin and its destination. UK VAT applies to orders from within the United Kingdom to customers in Northern Ireland, and to orders from within Northern Ireland to customers in the United Kingdom. EU VAT applies to orders from within the European Union to customers in Northern Ireland, and to orders from within Northern Ireland to customers in the European Union.
Before you begin setting up EU and UK taxes in Shopify
You need to determine whether you should charge taxes. If you're not sure, then consult with local tax authorities or a tax professional. Typically, if you intend to sell to countries in the EU, then you need to register with the tax authorities in your own country to charge EU VAT. If your sales to customers in the UK are equal to or greater than £85,000 GBP within a 12-month period, then you typically need to register to charge UK VAT.
If you exceed a certain threshold of sales into a country in the EU, or you have a significant business presence there, then you might need to register for the One-Stop Shop (OSS) scheme, or contact each of the relevant agencies and register with them. The process varies depending on where your business is based and where you sell, and on individual government requirements. Where you're registered to collect VAT determines the rates that you charge to your customers.
- For customers in your home country, your local VAT rate is charged.
- For customers in EU countries outside your own, the rate is determined by whether you exceed the registration threshold of €10,000 EUR.
- If you do not exceed the threshold, then your local VAT rate is charged. To charge your local tax rate to customers in the EU, you need to use the micro-business exemption.
- If you exceed the threshold, then the VAT rate of your customer's country is charged. To charge the destination country's VAT rate, you need to register for a VAT number with OSS or with that country.
If you have a significant presence in a country, then you should contact that country's tax authority to confirm whether you need to register to collect taxes. It's your responsibility to determine if your business exceeds the distance sales threshold.
Charge VAT with the OSS
The One-Stop Shop scheme, also called the Union OSS, is for merchants with locations in the EU and NI whose sales to customers in other EU member countries require them to charge and remit VAT based on destination countries.
If your annual sales to all other EU member countries are less than €10,000 EUR, then you can do either of the following:
- Use the micro-business exemption to charge your local VAT rate.
- Register for the OSS if you want to charge VAT based on the location of your customers.
You can only use OSS if your store uses registration-based taxes. If you haven't updated your settings to use registration-based taxes, then update your tax rates manually by using location-based tax rates.
Set up your VAT registration for the UK
After you've registered with a tax authority and have your UK VAT number, you can set up your UK taxes.
Steps:
From your Shopify admin, go to Settings > Taxes and duties.
In the Countries/regions section, click United Kingdom.
In the VAT collection section, click Collect VAT.
In VAT number, enter your VAT number. If you have applied for a VAT number but don't yet have one, then leave this field blank. You can update it when you receive your number.
Click Collect VAT.
After you set up your tax regions, then you can create tax overrides for products where the default tax rates don't apply.
Tax overrides set for the UK affect orders in the following examples:
- Orders that are placed by a customer in the UK and that are shipped from the UK, including Northern Ireland
- Orders that are placed to or from Northern Ireland if the Micro-business exemption is selected for Northern Ireland, which results in the merchant's local VAT rate being charged
- Orders that are placed from a customer in Northern Ireland to a merchant in an EU member country if Country-specific registration or One-Stop Shop registration is used, which results in the customer's local VAT rate being charged
Set up your VAT registrations for the EU
After you've registered with a tax authority and have your EU VAT number or your UK VAT number, you can set up your EU taxes.
Steps:
From your Shopify admin, go to Settings > Taxes and duties.
In the Countries/regions section, click European Union.
On the VAT on sales within the EU page, click Collect VAT.
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Select how you're registered for VAT.
- If you've registered for the OSS scheme and you plan to submit a single VAT return for all sales to customers in EU member countries, then select One-Stop Shop registration.
- If your store makes yearly sales of €10,000 EUR or less and you plan to submit a VAT return to your local tax authority, then select Micro-business exemption. The micro-business exemption isn't available if you have more than one VAT registration.
- If you plan to submit a VAT return directly to the tax authorities of EU member countries that you ship to, then select Country-specific registration.
Click Next.
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Do one of the following:
- If you selected One-Stop Shop registration, then select Northern Ireland Protocol from the country list, and then enter your VAT number from the country where you're registered. Click Collect VAT. If you need to add additional VAT registrations, then click Add country on the VAT on sales within the EU page.
- If you selected Micro-business exemption, then select Northern Ireland Protocol from the country list, and then enter your VAT number from your home country. Click Collect VAT.
- If you selected Country-specific registration, then select Northern Ireland Protocol from the country list, and then enter your VAT number from the country where you're registered. Click Collect VAT. If you need to add additional VAT registrations, then click Add country on the VAT on sales within the EU page.
After you set up your tax regions, then you can create tax overrides for products where the default tax rates don't apply.
Tax overrides set for EU member countries affect orders in the following examples:
- Orders that are placed in an EU member country and that are shipped from an EU member country, including Northern Ireland.
- Orders that are placed from a customer in an EU member country to a merchant in Northern Ireland if Country-specific registration or One-Stop Shop registration is used, which results in the customer's local VAT rate being charged.
Manage your VAT registrations
If your store is located in Northern Ireland and you charged VAT to EU customers as soon as Brexit tax laws came into force, then your registrations are entered as Country-specific registration. You can change your registrations to One-Stop Shop registration or Micro-business exemption.
Steps:
From your Shopify admin, go to Settings > Taxes and duties.
In the Countries/regions section, click European Union.
In the VAT on sales within the EU section click Change registration.
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Do one of the following:
- If you've registered for the OSS scheme and you plan to submit a single VAT return for all sales to customers in EU member countries, then select Northern Ireland Protocol from the country list, select One-Stop Shop registration, and then enter your VAT number from the country where you're registered. Click Collect VAT.
- If your store makes yearly sales of €10,000 EUR or less and you plan to submit a VAT return to your local tax authority, then select Micro-business exemption, select Northern Ireland Protocol from the country list, and then enter your VAT number from your home country. Click Collect VAT.
Click Save.