Getting Tax Right Is Non-Negotiable
Incorrect tax configuration leads to compliance issues, customer complaints, and potential penalties. Shopify handles much of the complexity, but proper configuration requires understanding your obligations. Our consultancy includes tax configuration as part of store setup.
UK VAT on Shopify
Standard VAT Setup
If your business is VAT-registered, configure Shopify to include 20% VAT in product prices (standard for B2C UK stores). Set prices as tax-inclusive so displayed prices match what customers pay. Shopify calculates and reports VAT automatically.
VAT Registration Threshold
UK businesses must register for VAT when taxable turnover exceeds £90,000 in a 12-month period. Even below threshold, voluntary registration lets you reclaim VAT on business expenses. Configure Shopify before registration to maintain accurate records.
Digital Products
Digital products sold to EU consumers require VAT collection at the customer’s country rate, regardless of your business location. Shopify handles this through its tax calculation system, but verify settings are correct for digital goods.
EU Tax Configuration
OSS (One-Stop-Shop)
If you sell to EU consumers and exceed €10,000 in EU-wide sales, register for the One-Stop-Shop scheme. File a single quarterly return covering all EU member states. Shopify collects the correct local VAT rate for each country automatically.
IOSS (Import One-Stop-Shop)
For goods shipped from outside the EU valued under €150, register for IOSS. Collect VAT at point of sale so customers avoid charges at customs. This improves customer experience and reduces delivery refusals.
US Sales Tax
US sales tax varies by state, county, and city. Enable Shopify Tax for automated US tax calculation based on nexus rules and customer location. If you have economic nexus in US states (from meeting sales thresholds), you must collect and remit state sales tax.
International Duties and Import Tax
Use Shopify Markets for duty and import tax collection at checkout. Assign HS codes to products for accurate duty calculation. Choose between DDP (you pay duties, included in price) and DDU (customer pays on delivery). DDP provides a better customer experience.
Tax Exemptions
Some products qualify for reduced or zero VAT rates — children’s clothing, food, books. Configure tax overrides in Shopify for exempt products. B2B customers with valid VAT numbers should be able to purchase tax-free within the EU using reverse charge.
Record Keeping
- Export tax reports from Shopify for VAT returns
- Maintain records of all EU transactions for OSS filings
- Keep evidence of customer location for digital goods tax
- Document tax exemptions and override justifications
Professional Advice
Tax regulations change frequently and vary by jurisdiction. Consult with an accountant specialising in ecommerce for your specific situation. Shopify provides tools; professional advice ensures compliance. Our team handles the technical store configuration while recommending tax advisory partners.
Need help with tax setup? Our team configures Shopify tax settings correctly from day one.
