If you’re one of the over 3.7 million businesses with websites running on Shopify then you’ll probably have asked this question at some point or another.
In this post, we will break down exactly what you need to know about Shopify Fees and VAT as well as show you where to check in your Shopify account to be double sure if you are paying VAT on your Shopify fees or not.
The team at Link My Books are happy to provide users with technical assistance in applying tax rules to their Link My Books setup. We are not Tax Advisors and so our advice and suggestions on the application of tax rules cannot be construed as tax advice. We highly recommend that users seek advice from qualified accountants for their tax compliance.
If you are based in the UK or the EU (excluding Ireland) and you have provided your VAT number to Shopify then Shopify are NOT charging VAT on their fees.
If you are based in the UK or the EU (excluding Ireland) and you have NOT provided your VAT number to Shopify then Shopify ARE charging VAT on their fees.
If you are based in Ireland then Shopify ARE charging VAT on their fees.
More Detailed Answer
If your business is established in the UK or the EU then Shopify invoices its fees to you via their Shopify International Limited legal entity, a private company limited by shares, incorporated in Ireland under registration number 560279, with its registered offices located at 2nd Floor Victoria Buildings, 1-2 Haddington Road, Dublin 4, D04 XN32, Ireland, VAT number IE 3347697KH.
So, firstly, if your business is established in Ireland then due to Shopify billing its fees from their Irish legal entity you will be charged 23% Irish VAT on them. This is regardless of if you have provided Shopify with your IE VAT number.
If, however, your business is established in the UK or the EU (excluding Ireland) different rules apply depending on whether or not you have provided Shopify with your VAT number.
This is because of some rules called “reverse charge VAT rules”.
If you have not provided Shopify with your VAT number then they are forced to treat you as a “consumer” under VAT regulations, meaning any supplies of services to you must have VAT applied to them.
If however, you have provided Shopify with your VAT number then they will treat you as a “business” customer and as such will not apply any VAT to their fees and instead, they will apply the reverse charge rules.
What does Reverse Charge mean?
Good question. So when VAT is reverse charged it essentially means that the supplier does not charge any VAT, the customer does not pay any VAT but both parties account for it.
In Xero and QuickBooks there are specific tax rates for this type of expense:
Xero - Reverse Charge Expenses (20%)
QuickBooks - 20.0% RC SG (Reverse Charge Services 20%)
How can I double check the tax rate Shopify are charging me?
Inside your Shopify Admin you can check if you have previously entered your VAT number and if Shopify has verified it using the below steps:
Navigate to your Billing page:
From your Shopify admin, go to Settings > Billing.
In the VAT number section, provide your VAT information:
If you have a VAT number, then click Add VAT number, enter it in the space provided, and click Save.
If you don't have a VAT number, then click I don't have a VAT number, and click Confirm. The VAT number is displayed as N/A.
Shopify verifies your VAT number through the VAT Information Exchange System (VIES) and changes its status from pending to verified once the verification is complete.
You could also download one of your monthly bills which would show clearly if any VAT has been charged.
How do I set the correct tax rate in Link My Books?
If you’re using Link My Books to automate your Shopify bookkeeping then you will be prompted during your initial setup to enter a tax rate for your Shopify fees:
In Link My Books our default tax rate for Shopify Fees is Reverse Charged Expenses as most sellers who are VAT registered have entered their VAT number on Shopify but it is always wise to check as if you are paying VAT on your Shopify fees then you should change this tax rate in Link My Books accordingly ensure that you are reclaiming all the VAT you are entitled to.
If you have any questions about this then please feel free to reach out to the Link My Books support team ([email protected]) who would be happy to help ensure you set the correct tax rate.