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.
In this article, we will discuss
- 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 digital services
The difference between the UK and Great Britain
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.
Be careful not to mistake Ireland for being part of the UK—it is part of the EU and therefore follows EU VAT rules. To get to grips with the VAT rules for the EU, see our VAT guide for Shopify stores in the EU.
Before Brexit, the UK had the same VAT regime as the EU. Now that the UK is no longer part of the EU, it is governed by its own set of VAT rules.
Although Northern Ireland has remained part of the UK’s VAT system, Northern Ireland maintains alignment with EU VAT rules for goods due to the Northern Ireland Protocol implemented as part of Brexit discussions. This means that UK VAT rules relating to transactions (such as VAT rates) apply to Northern Ireland, whereas EU VAT rules apply relating to imports and exports.
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 £85,000. You can voluntarily register for VAT at any time.
My business is not VAT registered
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.
My business is VAT registered
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.
|Selling from||To customers in||Consumers (B2C)||Businesses (B2B)|
|UK (England, Scotland, Wales and Nothern Ireland)||UK (England, Scotland, Wales and Nothern Ireland)||VAT||VAT|
|UK (England, Scotland, Wales and Nothern Ireland)||Outside of the UK and outside of the EU||
(England, Scotland, and Wales)
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.
Selling from the UK to customers in the UK
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.
The UK government provides a website that allows you to check what VAT rate you should charge on different goods and services.
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.
Selling from the UK to customers outside of the UK and outside the EU
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.’
Selling from Great Britain to customers in or outside the EU
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.
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 customers in the EU
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 countries rate in which you are selling, but you only have to report on one OSS VAT return.
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.
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.
Selling digital services
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.
The VAT rules when selling digital services
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 register for VAT in that country and charge its VAT rate to your customers there. If you are selling digital services to VAT-registered businesses, then they are responsible for any VAT due to the tax authorities in their country.
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.
Unfortunately, the non-union MOSS scheme, which lets businesses register and pay VAT to HMRC instead of registering for VAT in up to 27 EU member states, was closed to UK businesses on sales made from January 1, 2021.
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 April 10, 2022