All You Need To Know About VAT on Shopify

Shopify VAT

Are you worried about VAT on your Shopify Store? Shopify is one of the world’s most popular online selling platforms for ecommerce. Its allure of allowing people to create their own personalized online stores through their user-friendly and intuitive features has made them the top choice for millions of online sellers worldwide.

If you are planning on jumping into the online selling industry, Shopify will definitely give you all the creative space that you will need, plus the necessary tools that will enhance your overall experience.

Shopify, with its personalization-centered features, is arguably the best platform that you can use to turn your great business idea into a real thing.

However, like any other business, there are rules and regulations that you will need to comply with. And one example of these rules is VAT – which brought a lot of confusion to most people, especially sellers on Shopify.

Fortunately, Your eCommerce Accountant is here to help you. In this article, we will help you understand VAT and how it will affect your business. We are chartered accountants that specialize in providing accounting services for eCommerce businesses operating in the UK.

What is VAT and Why it matters?

Value-added tax (VAT) or GST in some other countries is simply a tax based on the consumption of products, services, and goods. And many other countries have started using VAT or any other similar tax in their trade regulations.

It is important that you know how VAT charges work, especially on Shopify because the platform (at least for now) doesn’t automatically collect VAT for your transactions.

Thus, learning the basic concept of VAT will help you know when to apply and collect VAT charges.

If you are interested in having a more detailed discussion with VAT charges and other financial aspects of your business, you can book a free consultation with Your Ecommerce Accountants here.

When do you collect VAT on Shopify?

Before you start thinking about whether you will charge VAT on your sales on Shopify, you will have to determine if your business is VAT-registered or not.

If your business is not VAT-registered then you will not be required to charge VAT except if your taxable profit in the last year exceeds the allowed threshold set by your local tax authority.

 You can verify the allowed threshold for VAT exemption through your local tax authority. If you exceed the allowed threshold, then you will be required to register for a VAT ID.

Consequently, if you are VAT registered, then you will have to charge VAT on some of your transactions.

What are Vatable Transactions on Shopify?

If you are VAT-registered then you will need to remember three rules on applying VAT.

Selling to Consumers and Businesses in the same country

If you are transactions are from people in the same country, regardless of whether they are a consumer or another business entity, then you will always have to charge for VAT.

Selling to Consumers/businesses outside of UK but in Europe

Since Brexit you no longer need charge VAT to customers in Europe when selling from the UK. However, they will suffer VAT at the border if not prepaid. Therefore you have three options

  1. Register for IOSS in Europe, this allows you to collect VAT across Europe when exporting to Europe. This can be costly and time consuming – talk to us today to discuss this.
  2. Prepay the Vat by sending the package duty paid, this means you have already paid the VAT and the customer will not get charged at the border
  3. Do nothing. Inform the customer they may get a VAT charge at the border and they will need to pay it to get released

Remember, this is largely down to how you want your customer experience to be.

How do you set the VAT rate on Shopify?

Setting the VAT rate and updating your VAT registration on Shopify can be easily done through the following steps;

  1. Go to your Shopify Admin account.
  2. Select Settings and go to the Taxes page.
  3. Click Update VAT registration.
  4. Select your home country and enter the tax rate and other necessary information.
  5. Click save and Collect Tax.

Can I include the VAT on the displayed price of my products on Shopify?

Yes, Shopify has added a feature where you can include or exclude the VAT on the prices of your product. You can easily do this through the steps below;

  1. Go to your Shopify Admin account.
  2. Select Settings and go to the Taxes page.
  3. Select Tax calculations, and check or uncheck the “include or exclude tax based on your customer’s country checkbox.
  4. Click save

This feature will allow you to be more transparent to your customers and will also help you manage your financial reports in the long run, so make sure to update them regularly.

Overall, VAT on Shopify is both a simple and complicated topic because of the differences between the regulations of different countries and the updates on the tax regulation itself.

If you want to understand more about VAT and help you manage your business’ compliance with the different regulations, as specialist Shopify accountants, Your Ecommerce Accountant are here to help.

Our expertise in the field will not just help you comply with the ever-changing rules, but also save your precious time from the hassle, which you can instead spend on what you do best — selling your products.

Book your Free Consultation

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Why not grab a Free 30 Minute Consultation with Ben, he can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

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Ben Sztejka ACA

Ben Sztejka ACA

We are a leading e-commerce accounting firm, focused on assisting UK and EU businesses in thriving online. With expertise in Amazon FBA, Shopify, Etsy, and eBay, we provide customised tax compliance and reporting solutions. Our team combines 10 years of experience as ICAEW chartered accountants with 15 years in e-commerce, offering unparalleled support to both e-commerce businesses and accountants.

Ben Sztejka ACA

Ben Sztejka ACA

Head Accountant & Director here at Your Ecommerce Accountant. Specialises in Ecommerce Accounting drawn from his own experience in Ecommerce and selling on marketplaces like eBay, Amazon & ETSY.

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