VAT guide for Shopify stores in the UK

As a Shopify store owner, it is crucial to understand how VAT operates in the UK, including VAT on goods sold within and between each country. However, navigating VAT rules can be a real headache. Coupled with Brexit and the Northern Ireland Protocol, it can seem like a minefield for the UK in particular.

This article will help you understand this topic and make sure your Shopify store is correctly set up to charge VAT in the UK.

• The difference between the UK and Great Britain
• How to charge VAT when your business is not VAT registered
• How to charge VAT when your business is VAT registered
• Selling from the UK to customers in the UK
• Selling from the UK to customers outside of the UK and the EU
• Selling from Great Britain to customers in or outside the EU
• Selling from Northern Ireland to customers in the EU
• Selling to consumers (B2C) in the EU
• Selling to businesses (B2B) in the EU
• Selling digital services

Firstly, let’s start with the basics—the difference between the UK and Great Britain. The UK is made up of four countries: England, Scotland, Wales, and Northern Ireland. On the other hand, Great Britain refers just to England, Scotland, and Wales.

The Northern Ireland Protocol was introduced in January 2021 to prevent a hard border between Northern Ireland and the Republic of Ireland. This meant that Northern Ireland remained part of the UK’s VAT system, but maintained alignment with EU VAT rules for goods.

Following the introduction of the Windsor Framework in February 2023, the UK government now has more control over VAT in Northern Ireland. This means:

• Northern Ireland remains part of the UK’s VAT system, but is now subject to new rules regarding VAT on goods.
• The UK government can now apply different VAT rates in Northern Ireland for goods that are only sold within Northern Ireland.
• A "UK-wide" approach now applies to certain goods, reducing EU VAT influence on items intended solely for the Northern Ireland market.

The UK tax authority—HMRC—remains responsible for collecting VAT in Northern Ireland. As such, all UK sales continue to be reported on the UK VAT return.

The most significant distinction for your business is whether it is VAT-registered or not.

Many businesses start as VAT unregistered, but once your turnover reaches a certain threshold for the year, you must register for VAT. The VAT registration threshold for this tax year for goods sold in the UK is £90,000. You can voluntarily register for VAT at any time.

If your taxable turnover is below the VAT threshold and not VAT registered, you do not have to charge VAT.

This applies to the whole of the UK, including Northern Ireland, and means that you do not charge VAT regardless of where your customers are from.

If your business is in the UK and you are VAT registered, you have to charge VAT to some customers and not others, depending on where your customers are located.

With this handy table, you can see when you need to charge VAT depending on where in the UK your Shopify store is located and who you are selling to.

Essentially, any Shopify store owner within the UK selling goods within the same country or to another country in the UK will have to charge VAT. This applies to selling to consumers (B2C) and businesses (B2B).

Shopify owners in Northern Ireland also have to charge VAT to customers in the EU, whereas Shopify owners in Great Britain will not. No country within the UK charges VAT to countries outside the UK or EU.

Lastly, you need to include your VAT registration number on your invoices to make them valid.

Whether you are selling to the same country within the UK or to a different country within the UK, you need to know the correct VAT rate so you can charge it correctly and reclaim it on your purchases.

There are three different VAT rates in the UK – standard, reduced, and zero rates.

Most goods are standard rate which is charged at 20%. You should charge this rate unless the goods are classed as reduced or zero-rated.

Reduced rate goods are charged at 5% and include children’s car seats and mobility aids. Zero-rated goods are charged at 0% and include goods like books, newspapers, and children’s clothes and shoes.

Although zero-rated goods are charged at 0%, you must still record them in your VAT accounts and report them on your VAT Return.

Regardless of whether your goods are standard, reduced, or zero-rated, you must always show the VAT information on your invoice.

Sufio will automatically create valid invoices with a detailed breakdown of the charged VAT.

Goods sold from the UK outside of the UK and the EU are zero-rated.

Although the rate of VAT is 0%, you must record them in your VAT accounts and report them on your VAT return and keep ‘evidence of removal.’

The VAT rate for both these scenarios is exactly the same. Goods sold from Great Britain outside the UK and the EU are zero-rated.

However, under the Windsor Framework, goods sold from Great Britain to Northern Ireland may now fall under two categories:

• Green lane: Goods staying in Northern Ireland follow UK VAT rules.
• Red lane: Goods that may move into the EU must comply with EU VAT rules.

This means fewer businesses will need to deal with EU VAT processes when selling from Great Britain to Northern Ireland.

As set out above, although the rate of VAT is 0%, you must record them in your VAT accounts and report them on your VAT return and keep ‘evidence of removal.’

Selling from Northern Ireland to consumers in the EU or non-VAT registered businesses in the EU

Goods sold to individuals or businesses which are not VAT registered are called ‘distance sales.’ For distance sales, you must charge UK VAT in the normal way unless you breach the EU-wide threshold of €10,000 (£8,818).

If the total value of your sales to any EU member state is above the threshold, you must register for VAT in that country and charge their rate of VAT on sales to customers in that country.

If you breach the threshold by selling to multiple countries, registering for VAT in each EU member state can become admin heavy. In this case, you can choose to use the One-Stop Shop (OSS) Union scheme, which means you still charge VAT at the rate of the country in which you are selling, but you only have to report on one OSS VAT return.

Under the Windsor Framework, reporting requirements are simplified for businesses trading thanks to the UK Internal Market system.

Shopify allows you to set these tax settings for individual VAT registrations and automatically charge the correct taxes to your EU customers.

Selling from Northern Ireland to VAT registered businesses in the EU

Most goods being sold from Northern Ireland to VAT registered businesses in the EU will be zero-rated.

It’s worth noting that the Windsor Framework provides clearer guidance on which products require EU VAT compliance, reducing administrative burdens for businesses operating out of Northern Ireland.

In addition to reporting on your VAT return, you must also keep ‘evidence of removal.’ Valid invoices, such as those created by Sufio, can serve as proof that the goods were shipped outside of the UK.

Depending on where your customers are based, there are special rules for selling digital services from the UK. But firstly, it is critical to understand what exactly digital services are.

Digital services include radio and television broadcasting services, telecommunication services, and electronically supplied services, such as online magazines, music, films, and games.

Even though a company uses the internet to facilitate trading, this does not always mean that they provide e-services. For example, the sale of goods where the order and processing are done electronically (such as through a Shopify store) is not a supply of digital services. This is regarded as a sale of goods and follows the usual VAT rules set out above.

If you are a Shopify owner making supplies of digital services from the UK to UK consumers, those supplies are liable to UK VAT in the usual way.

When it comes to selling digital services from the UK (including Northern Ireland) to the EU, there is no registration threshold (such as the exemption for micro-businesses of €10,000). Therefore, if you are selling to individuals or businesses who are non-VAT registered, you must use the One Stop Shop Union Scheme to report and pay the appropriate VAT.

Please note that if your digital services are provided through a marketplace, then it is the operator of the marketplace who has VAT obligations in the country in which the final customers are located.

After your tax rates are configured correctly in your online store, Sufio will create valid invoices with a breakdown of the VAT charged.

The invoices can be generated in multiple languages and include all the details needed to comply with the UK's invoicing legislation.

Having the correct tax breakdown on invoices is essential to your bookkeeping and your tax purposes.

If you are selling to businesses (B2B), Sufio invoices include all the required information, such as the VAT identification numbers of your store and your business customers.

Last updated on February 27, 2025