Shopify Taxes: How to Set Up VAT for the UK and EU

Who it is for

UK stores selling at home and into the EU

Time needed

Two hours, plus registrations

What you need

Your VAT number and, for EU orders, an IOSS number

There are three tax setups I see on UK Shopify stores. The first collects nothing, because the store is under the VAT threshold, and that's fine. The second collects UK VAT correctly but ships to Europe with no plan, so Dutch and German customers get a bill from the courier. The third has a mix of settings left over from an old app and nobody is sure what's being charged. This guide gets you to a fourth: UK VAT set up properly, EU orders handled on purpose, and test orders that prove it.

Menu names and fees come from Shopify's help center, and the rules from GOV.UK, HMRC and the European Commission, as checked on 7 November 2026. I cover UK stores first, then a short section for stores based in the EU.

Step 1: Check whether you need to register for UK VAT

You must register when your total taxable turnover for the last 12 months goes over £90,000, or when you expect to pass £90,000 in the next 30 days alone. It's a rolling 12 months, not the tax year, so check it every month once you get close. You can also register voluntarily, which lets you reclaim VAT on business costs.

Step 2: Know which tax service your store uses

Shopify changed this in 2026. Basic Tax is only available in the UK and EU if your store was set up to collect tax there before 13 May 2026. Existing Basic Tax stores carry on as they are. Every other store uses Shopify Tax or manual tax settings.

For stores created on or after 13 May 2026, the £100,000 is a lifetime threshold. Older stores get it each calendar year, with fees capped at £5,000 per region per year. Fees only apply where you've turned on tax collection, and they appear on your Shopify bill. Shopify calculates and charges tax, but it doesn't file or pay your VAT returns.

Step 3: Turn on UK VAT in Shopify

1. Open tax settings. Go to Settings > Taxes and duties and, in Tax regions, click United Kingdom.
2. Start collecting. In VAT collection, click Collect VAT.
3. Add your VAT number. UK VAT numbers are "GB" followed by 9 digits. If HMRC hasn't issued it yet, leave the field blank and add it later. Shopify doesn't check the number, so copy it carefully.
4. Click Collect VAT to save.
5. Include VAT in your prices. UK shoppers expect prices with VAT included. In Settings > Taxes and duties, select Include sales tax in product price and shipping rate and save. Keep Charge tax on this product ticked on each taxable product.
6. Add overrides for other rates. If you sell zero-rated or reduced-rate items, such as children's clothing, create tax overrides for those products so they aren't charged 20%.

Your VAT number also feeds Shopify's automated contact information policy, so it appears on your storefront alongside your address once it's saved.

Step 4: Test it with a draft order

1. Go to Orders > Drafts and click Create order.
2. Add a product and a customer with a UK shipping address.
3. Add a shipping method. Shopify won't calculate tax without one.
4. Check the Tax line shows the rate you expect, then delete the draft.

Repeat it for a zero-rated product and a mixed basket. When a basket has items at different VAT rates, Shopify splits the shipping tax proportionally, so the tax on delivery can look odd at first. That's expected.

Step 5: Decide how to handle EU orders

Since Brexit, a parcel from Great Britain to a customer in Germany or the Netherlands is an export. On the UK side, HMRC lets you zero-rate exported goods, as long as the goods leave the UK and you hold evidence of export within 3 months. Keep that evidence for 6 years. On the EU side, the customer's country charges import VAT, and you choose who pays it:

Step 6: Set up IOSS for EU orders up to €150

The Import One-Stop Shop (IOSS) lets a seller outside the EU charge EU VAT at checkout on consignments worth up to €150, and declare it through one EU return instead of registering in each country. The goods then clear customs without the customer paying VAT on delivery. Goods subject to excise duty, such as alcohol, can't go through IOSS.

A seller with no EU establishment generally has to appoint an EU-based intermediary to register. The European Commission makes an exception for sellers in a country with a VAT mutual assistance agreement with the EU, so ask your accountant whether it applies to you. Once you have the number:

1. Create an EU shipping profile first. Shopify needs EU shipping rates in Settings > Shipping and delivery before the IOSS option appears.
2. Open the EU tax region. Go to Settings > Taxes and duties and, in Tax regions, click Manage next to European Union.
3. Add the registration. In Shipping to the EU, click Collect VAT next to VAT on sales to the EU, select the country where you registered for IOSS and enter your IOSS VAT number.
4. Click Collect VAT and place a test order to an EU address under €150 to check the VAT line.

Orders over €150, measured before VAT and shipping, fall outside IOSS. The carrier collects import VAT and duties on delivery unless you collect them at checkout.

Step 7: The €3 EU duty and collecting duties at checkout

Until 30 June 2026, EU parcels worth €150 or less paid no customs duty. From 1 July 2026, the EU applies a temporary €3 customs duty on low-value parcels from outside the EU. It's charged per item type, by tariff classification, not per item: the Commission's example is that five T-shirts pay €3, while three T-shirts and a watch pay €6. The seller or importer declares and pays it.

IOSS still covers the VAT on these orders, but not this duty. If you want EU customers to pay nothing on delivery, turn on duty collection:

1. Go to Settings > Taxes and duties and, in Duties and import taxes, click Set up.
2. Confirm your carriers support delivered duty paid (DDP) labels, then choose the countries.
3. Add the missing HS codes and country of origin to the products Shopify flags.
4. Update your shipping policy and notifications, review the terms and click Agree and activate.

Shopify charges a fee for calculating duties. It has been a temporary 0.5% since 2 February 2025. The standard rate is 0.85% with Shopify Payments as your main gateway, or 1.5% with another provider.

If your store is based in the EU

For a store with stock in the Netherlands or another EU country, the rules are different. Cross-border sales to consumers in other EU countries are taxed at your home rate until they reach €10,000 a year in total, then at the customer's country rate. The One-Stop Shop (OSS) lets you declare all of that in one return.

• Under €10,000: in Settings > Taxes and duties > European Union, choose Collect using your home country registration.
• Over €10,000: choose Collect using a One Stop Shop (OSS) registration and enter your number.
• Selling into the UK: on consignments of £135 or less, you must register for UK VAT and charge it at checkout. Above £135, the importer usually pays VAT and duties on arrival.

Northern Ireland is a special case: it's treated as part of both the UK and EU systems for goods, and merchants with locations there use OSS rather than IOSS.

Common mistakes

• Counting turnover by tax year. The VAT test is a rolling 12 months.
• Adding countries you aren't registered in, which charges customers tax you can't account for. Remove them.
• Shipping to the EU with no IOSS and no warning. The customer gets a courier bill and often refuses the parcel.
• Assuming IOSS covers the new €3 duty. It only covers VAT.
• Turning duties on and off casually. Shopify warns that when duties are active for UK orders, only the duties system taxes them, and switching duties off doesn't restore normal UK tax collection. Ask Shopify Support first.
• No export evidence. Without it, HMRC expects UK VAT on the sale.

UK and EU tax checklist

• I check my rolling 12-month turnover against £90,000 every month.
• My UK VAT number is saved under Settings > Taxes and duties > United Kingdom.
• Prices include VAT, and reduced and zero-rated products have overrides.
• A draft order and a real checkout both show the right VAT.
• I have decided who pays EU import VAT, and say so on the product page and at checkout.
• If registered, my IOSS number is added and tested on an EU order under €150.
• Products have HS codes and country of origin if I collect duties.
• I keep export evidence for every EU parcel for 6 years.

Next steps

Open Settings > Taxes and duties now and write down what is switched on. Compare it with the checklist, then place a UK test order and an EU test order before changing anything else. If you're still deciding how to structure the business, read sole trader vs limited company first, and for the wider costs of selling abroad, see what an international Shopify store costs.

Planning a store for several countries? Shopify Markets vs multiple stores compares the two setups. I set up tax, duties and Markets for UK stores as a Shopify developer in the UK, and a free store review is the easiest way to find out what's wrong with yours.

Frequently asked questions

Sources

1. Tax registration for UK merchants, Shopify Help Center
2. EU tax reference, Shopify Help Center
3. How VAT works: when to register, GOV.UK
4. VAT on goods exported from the UK (VAT Notice 703), HMRC, GOV.UK
5. Register to OSS, European Commission
6. Ensuring fairness and safety: €3 customs duty for low-value parcels, European Commission

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Written by Ashraf Siddik

I'm a Shopify developer and CRO specialist. I have built and improved Shopify stores since 2018, completed more than 1,000 projects, and hold a 4.96 average rating across 719 client reviews.

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