27 Jul Setting up Magento UK based tax rates
Setting up Magento UK based tax rates
UK VAT requirements with Magento
Setting up Magento tax rules for a UK based business can be a bit convoluted as there are quite a few rules that need to be set up. Here, we’ll assume that you are based in the UK, that you’re VAT registered, that you plan to sell to all countries both within and outside the EU, and that all your customers are retail customers.
If this is the case, you’ll charge VAT to your customers only if they are based within the EU. You don’t charge VAT for exports outside the EU – note that this includes Jersey and Guernsey (refhttp://www.accountingweb.co.uk/anyanswers/sales-co-jersey-vat/472004). There are effectively three rates of VAT you charge your EU based retail customers depending on the taxable status of a product – 20% is currently the standard rate, 5% is the reduced rate for some products and some items are zero rated for VAT purposes. See http://www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm for more details.
Setting up the rates
The first step is to set up the product tax classes. Once these are set up, you can associate each product with it’s tax class when you add/edit the product. Set up one class for each of the VAT rates by going to Sales → Tax → Product Tax Classes; e.g. you could call them VAT 20%, VAT 5%, VAT 0%.
If you’re just selling to retail customers, you shouldn’t need to change the Customer Tax Classes (Sales → Tax → Customer Tax Classes) – a “Retail Customer” class is set up by default.
Now it’s time to set up the tax zones (Sales → Tax → Manage Tax Zones & Rates). Firstly, delete the default zones for the US. Then go to Sales → Tax → Import/Export Tax Rates and import the following CSV:
This CSV will set up all the tax zones for each VAT rate. Note that Guernsey and Jersey have special 0% rates set up based on the postcode if the customer chooses “United Kingdom” rather than Jersey/Guernsey when they check out.
Now it’s time to set up the tax rules themselves (Sales → Tax → Manage Tax Rules). This is where we tie the customer and product tax classes along with the rates together. We’ll need to set up three rules here – one for each VAT rate. Associate the 20% rate with the retail customer class, 20% product tax class and all the 20% zone rates at the bottom. You’ll also need to add the Jersey and Guernsey zone rates to this tax rate too, so they don’t pay any tax, even on a 20% rated product. Do the same for the 5% and 0% rates too, associating the correct zone and product rates. You can leave the priority and sort order fields as 0.
Finally, it’s time to set up the tax configuration in System → Configuration → Tax. Most of the options here are fairly self-explanatory and the correct option will be dependant on your requirements, but make sure that you display the prices including tax and set up the default tax destination to be the UK so that VAT is displayed by default.