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Tax Rate Setup for UK Magento Stores

08.11.2014

Depending on where your business is located, you have to adapt a different tax system for your Magento store. It is important to set this up correctly to comply with the local authority and avoid penalties imposed for non-compliance. Furthermore, it also makes it easier for you to report your quarterly or annual tax obligations.

If you are a business operating in the UK, use the following tips to quickly setup your tax rates and get your shop up and running:

1. In Magento, even when you have set your location to the UK, you will still find the default tax setup for the United States. You need to be aware of this and setup the new tax rate relevant to the UK (and EU possibly if you export your goods).

2. To setup your relevant tax rate for the UK, go to sales > tax > manage tax zones & rates. You should see a tab called “add new VAT rate” (see the red arrow in the image below).

Magento_Tax_Setup_Tips

Figure 1. Tax Setup screen Magento

You then setup the VAT as follows under most circumstances, assuming you use the standard rates of 20%:

Magento_Tax_Setup_Tips

Figure 2. UK VAT Setup

If you are selling to other EU countries, you should repeat this step for each country that you are selling to. It is also possible to use the bulk import tax in Magento to speed up the process if you are selling to many different countries. You can do this by going to Sales > Tax > Import/Export Tax Rates and upload a .csv file with the tax information.

3. The next step is to apply the rate that you have just created. You should go to Sales > Tax > Manage tax rules and set the configuration as follows:

Magento_Tax_Setup_Tips

Figure 3. Applying your new tax rate to a new tax rule

4. In some cases, you will need to create a customer group which is exclusive of tax. You can do this by going to Sales > Tax > Customer VAT Classes. In most cases, however, you can ignore this step.

5. We need to ensure the correct default settings for our shop in order for the tax rules to apply. Make sure to check the following:

• System > Configuration > General > Default Country is set to United Kingdom
• System > Configuration > Sales> VAT – ensure all display prices to “Including Tax” to follow the common practice in the UK and set the tax class of shipping to “Shipping”. Default Tax Destination Calculation should be set to United Kingdom as well.
• System > Configuration > Delivery Settings – Origin should be set to United Kingdom.
• Ensure that all of your products have “Taxable Goods” VAT class assigned to them. You can do this in bulk by going to manage products, select all products and choose “update attributes” action. You will see attribute list and update the VAT class from there.

After you apply all of the above steps, you should have your tax running as it should on your Magento shop’s frontend. Once you get the hang of the tax system and understand your tax requirements, it should be easy for you to play around with the settings and change it as necessary.

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