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Configuring VAT Tax rules for the UK in Magento

David Hellowell

Configuring VAT Tax rules for the UK in Magento

If you are running a magento store in the UK then chances are you need to ensure that the VAT calculations on your site are being performed correctly for reporting and invoicing purposes. Out of the box Magento sets up rules for the United States even when you have set your country to the UK. There a number of changes to the configuration that need to be made to ensure that the correct prices are displayed and that the tax calculations are accurate.

Step 1. Setting up your VAT rates and rules

The first step is to create a new Tax Rate for VAT. Navigate to “Sales > Tax > Manage Tax Zones & Rates” then hit “Add New Tax Rate” and configure as below. If you are exporting to other EU countries then this should be repeated for each of those countries.

 

Configure your new rule as above for UK VAT ( 20% at the time of writing )

Next we need to set up a rule to use this rate so navigate to “Sales > Tax > Manage Tax Rules” add new rule and configure like so:

 

Magento configuration for UK VAT rule

Step 2. Setting store configuration

As previously stated your initial installation of Magento will have configured everything for doing business in the USA so there are a number of things that need to be tweaked to display taxes/prices correctly to a UK audience.

2.1 Configuration > General > Default Country

Ensure this is set to the UK.

2.2 Configuration > Sales > Tax

For most stores you will want to set all the display rules to “including tax” as is the norm for retail in the UK, and ensure the tax class for shipping is set to shipping. You also need to ensure that “Default Tax Destination Calculation” is set to “United Kingdom”.

2.3 Configuration > Sales > Shipping Settings

Ensure that “Origin > Country” is set to the UK

Step 3. Set the Tax Class on your products

If this hasn’t already been done when you were setting up your inventory then you need to ensure all your products (or at least those which are eligible for VAT) have their Tax class set to taxable goods. This can be done on mass by selecting the products on the Manage products screen and choosing “update attributes” from the actions menu.

Trouble Shooting

My products are displaying without tax until checkout

Ensure that the “Default Tax Desitination Calculation” is set to the UK in “Configuration > Sales > Tax“.

I have set Catalog prices to including tax but extra tax is being added on in the frontend

Ensure that the Origin Country is set to the UK under “Configuration > Sales > Shipping Settings

More Help with Magento

If you need more help with Magento, see my extended post on how to configure a new Magento install for SEO.

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