Shopify is a great place to grow your online store, but understanding the tax implications – especially Shopify VAT – can be challenging.
If your Shopify business is based in the UK, and you have added your VAT number to your account, you shouldn’t have to pay VAT on Shopify fees. Instead, it will be accounted for using the reverse charge mechanism.
In this blog, we explore how VAT works on Shopify fees. We take a look at the different fees you have to pay, what the reverse charge VAT system is and how being VAT-registered can make things easier. Keep reading, or get in touch with us to see how our Shopify accounting specialists can help you.
How are Shopify fees charged?
Shopify charges various fees to your business, including:
- Subscription fees
- Shipping label fees
- Third-party transaction fees
- Domain fees
- One-time app fees
These fees will vary depending on where you run your Shopify business and the type of Shopify plan you use. You will get invoices for these fees, and there may be VAT to consider. You can head to your Shopify admin account to find details of your monthly Shopify bills and fees.
Does Shopify collect VAT?
You must ensure your Shopify account is set up correctly when you charge VAT to your customers. Various elements can affect how VAT is charged, namely the country you’re selling to and whether the product is VAT’able.
When you sell to different countries, there are different VAT rules, and depending on other factors, you may need to register for VAT in those countries.
Thinking of expanding your customer base? Reach out to us to make sure you’re set up and paying tax correctly.
Whatever payment service you use (for instance, Shopify) will pay you the full amount of your sales, including the VAT that needs to be passed on to HMRC or the government in the country where the sale was made. So technically, yes, Shopify (or whatever payment service you use) collects the VAT from your customers on your behalf and sends it to you, then it’s your responsibility to pay that to HMRC.
What about Shopify fees?
If your business is based in the UK or EU and you are VAT registered, then you won’t have to pay VAT on Shopify fees. However, if you’re not VAT registered or you operate in Ireland, you will have to pay VAT on Shopify fees.
If Shopify charges you VAT on fees, you’ll pay them the total amount (including VAT). They then pay this to the Irish government since that’s where they bill you from.
Can I deduct Shopify fees?
Shopify fees are entirely tax deductible. They are a genuine cost you need to do business, so yes, you can absolutely deduct them from your profits and save Corporation Tax on them.
If you’re not VAT registered and have been charged VAT on your Shopify fees, you can claim the total amount from your Corporation Tax. If you are VAT registered, you won’t be charged VAT on the Shopify fees, so you’ll already receive the deduction when you get the invoice.
How does reverse charge work with Shopify?
Reverse charge is a system used when you purchase a service from a company in Europe, and you’re VAT registered in the UK.
Since Shopify charges fees to all UK and European sellers through their Irish-based company, they can’t charge UK VAT. In this case, you have to use the reverse charge mechanism because your business can’t claim back Irish VAT.
Using the reverse charge system means Shopify doesn’t charge you VAT directly. Instead, you’ll receive a note at the bottom of their invoice stating that the fee is subject to the reverse charge system. As a VAT-registered business, you put this amount on your VAT return through sales and purchases, so it balances out without impacting your overall VAT liability.
However, if you are not VAT-registered, Shopify will charge you Irish VAT, which you can’t claim back. This effectively costs your business more money than if you are VAT-registered, which is why we always recommend considering VAT registration.
Need accounting help with your Shopify business? Contact Archimedia Accounts
Running a Shopify store is no small feat. We’ve got many clients in this space, so trust us, we know! It’s also one of the more complex types of businesses to run from a finance point of view, especially when you add VAT to the mix.
At Archmedia, we know eCommerce accounting like the back of our hands. We help clients with every aspect of Shopify accounting, from keeping on top of cash flow to working out your true profitability.
Our team has a thorough understanding of UK tax regimes and how Shopify VAT works. Whether you need help managing sales tax or guiding through the EU VAT registration process, we can tailor our services to meet your needs.
With an experienced accountant by your side, you’ll have more understanding and confidence in where your business is going financially. Contact us today to take your Shopify sales further.
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