Not sure whether to add VAT to your products and shipping? Or just how much VAT needs to be added, and when? Or whether you should be VAT registered in the first place?
VAT can be a challenge to get your head around. That’s why we’ve put together an all-in-one VAT primer to help you meet your VAT requirements – and keep the tax authorities happy.
Let’s walk through the following to see what your VAT responsibilities are as an eCommerce store owner, and to make sure that you’re meeting your tax requirements.
Should you be charging VAT?
This first step is a crucial one. If you’re not sure, find out whether you need to be VAT registered.
If the answer’s yes, you’ll need to register with the tax authority in the country where your company is based.
Once you’ve completed your VAT registration, you’ll be given a local VAT number – and must trade according to the tax rules of your country.
What VAT rates should you be charging?
It’s essential to understand and apply the correct rate of VAT for your products in accordance with the rules of the country where your business is based.
There are three VAT rates in the UK:
- Standard: 20% VAT
- Reduced: 5% VAT
- Zero: no VAT.
Some items are VAT-exempt and don’t need to have VAT applied. These items include books and children’s clothing.
Others fall into the reduced rate category, where the 5% VAT rate applies. These items include mobility aids for the elderly and children’s car seats.
Not sure what VAT rate applies to your products? You can find a handy breakdown here.
Should you be charging VAT on your shipping?
This depends. If you charge for shipping on top of the product itself, then generally you’ll need to add VAT to your shipping rates.
There are some circumstances where this doesn’t apply, such as if you’re supplying your products via a Royal Mail service.
The handy table below summarises the VAT you’ll be expected to charge – you can also find a full breakdown here.
Once you know that VAT needs to be added to your shipping rates, you’ll need to calculate the correct amount to apply. The VAT applied to the shipping for a given product will be the same as that applied to the product itself.
For example, a mobility aid for the elderly with a 5% Reduced VAT rate will also attract a 5% Reduced VAT rate on the shipping cost for that product.
How is VAT added to your shipping rates on your Kong store?
On a Kong store, this is easily done.
As a store owner, you have full control over the VAT applied to your shipping rates – you can apply the appropriate VAT rates for your courier-delivered items, or choose not to add VAT if you’re sending them via Royal Mail.
Your Kong store also automatically applies the appropriate VAT rate to your shipping fees based on the VAT liability of the particular items in that order.
This rate is calculated product by product, so even if an order contains a mix of Reduced, Zero-rated and Standard-rated items, the appropriate VAT shipping liability will be automatically added.
This is great for stores that sell a variety of products that command different VAT product rates – and it’s one of the extras that Kong offers that not all others do.
How is VAT calculated for items shipped outside the EU?
The tax applied to your products and their shipping differs depending on where those products are being sent. But it’s up to you as a business owner to charge the appropriate amount.
With Kong, it’s easy. Kong dynamically calculates the correct VAT rates for your products and shipping rates when the customer views them on your store front It does this based on the customer’s country of origin, which Kong determines automatically using their computer’s IP address. And if the customer sets their destination country to be different from where they’re located, Kong will automatically update the prices with the correct tax at checkout.
The VAT calculation is done at checkout so that customers outside the EU will see the bare, VAT-free prices as they browse your store. Because these customers aren’t subject to VAT, it makes sense for them to see the pre-tax prices – which will make them more likely to buy.
That’s VAT in a nutshell! Take some time to work through the above steps to make sure that you’re VAT registered and charging the appropriate VAT fees – and you’ll be in a tip-top VAT-compliant shape.