Do You Pay VAT on Shopify Fees? (Must Know Details) ✅

Many Shopify sellers struggle with VAT on their platform fees. The problem?

• Unclear invoices: Shopify doesn’t always make it obvious whether VAT is applied.
• Reverse charge confusion: If you’re VAT-registered in the UK or EU, you might need to apply the reverse charge mechanism, but many sellers overlook this.
• Overpaying VAT: Sellers frequently misclassify Shopify fees, leading to higher tax bills or compliance issues down the line.

The good news? You don’t need to spend hours figuring this out manually.

In this post, we will break down exactly what you need to know about VAT on Shopify fees, 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, and how you can automate the whole process with Link My Books.

‍**DISCLAIMER**

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.

‍VAT on Shopify Fees – The Short Answer

If you’re one of the over 3.9 million businesses with websites running on Shopify, then you’ll probably have asked at some point or another if there is VAT on Shopify fees.

If you are based in the UK or the EU (excluding Ireland) and 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.

If you enjoy keeping things simple then you may want to invest into Shopify accounting software!

It may seem complicated but most processes are automated for you and with software like Link My Books, which has a free 14 day trial, a celebrated support team and user friendly setup wizard, you might be suprised at just how easy Shopify bookkeeping can get with Link My Books!

Source: Shopify Charges & Shopify UK taxes

VAT on Shopify Fees – The More Detailed Answer

Suppose your business is established in the UK or the EU. In that case, 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 whether you provide 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 Shopify VAT to their fees and instead, they will apply the reverse charge rules.

How Can Link My Books Help With Your Shopify VAT

Link My Books is designed to simplify VAT management for Shopify sellers by automating VAT calculations, tracking, and reporting. Here’s how it helps:

Automated VAT Tracking

Link My Books syncs directly with your Shopify store and accounting software, such as Xero or QuickBooks, automatically pulling in all your sales data and applying the correct VAT rates based on each transaction's details. This ensures that every sale is accounted for accurately, reducing the risk of under or overpaying VAT​.

Effortless VAT Returns

With all VAT data automatically categorized, Link My Books makes filing your VAT returns straightforward and error-free. The software compiles the necessary information, making it easy to submit VAT returns to HMRC or other tax authorities​.

Handling Reverse Charge VAT

Link My Books recognizes when the reverse charge mechanism applies to your Shopify fees, ensuring that VAT is accounted for correctly on both input and output VAT, even though no actual payment is made. This is particularly useful for sellers who frequently deal with cross-border transactions​.

Why Choose our VAT management tool?

"Link My Books makes Shopify VAT calculations simple."

By automating VAT tracking, reporting, and filing, Link My Books eliminates the tedious and error-prone process of manually handling VAT. This ensures your business stays compliant with tax regulations while freeing up your time to focus on growing your Shopify store. 

With built-in integration to Shopify and the ability to handle complex VAT scenarios, Link My Books offers peace of mind for sellers navigating the complexities of international tax laws and Shopify Bookkeeping. 

🚀 Stop wasting time on manual VAT calculations. Try Link My Books for free today and take control of your Shopify accounting!

What does VAT 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 to check what tax rate Shopify charges me

Inside your Shopify Admin, you can check if you have previously entered your VAT number and if Shopify has verified it by following the below steps:

1. Navigate to your Billing page:
2. From your Shopify admin, go to Settings > Billing.
3. In the VAT number section, provide your VAT information:
4. If you have a VAT number, click Add, enter it in the space provided, and click Save.
5. 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.
6. Click Save.

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 Shopify bills, which would show clearly if any VAT has been charged.

How do I set the correct tax rate in Link My Books?

Link My Books allows Shopify sellers to automate their Shopify bookkeeping, and it will prompt them during the initial setup to enter a tax rate for their 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. Still, 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 to ensure that you are reclaiming all the VAT you are entitled to.

FAQ on Shopify Fees

Can I Claim VAT on Shopify Fees?

It depends on your VAT registration status and location.

• If you’re VAT-registered in the UK or EU, Shopify doesn’t charge VAT on its fees because it’s based in Canada. Instead, you must apply the reverse charge mechanism, which means:
  
  
  
  • You account for VAT as if it were charged (typically 20% in the UK).
  • You report this in your VAT return as both input VAT (reclaimable) and output VAT (payable), effectively canceling each other out.
• If you’re not VAT-registered, you can’t reclaim VAT on Shopify fees, but you also don’t need to apply the reverse charge.
  
  
• If you’re outside the UK/EU, VAT generally won’t apply to Shopify fees, but check local tax laws to be sure.

Does HMRC Check Shopify?

Yes, HMRC can audit Shopify sellers to ensure they are correctly reporting VAT. Common red flags include:

• Failing to apply the reverse charge mechanism on Shopify fees.
• Not charging VAT on UK and EU sales when required.
• Inaccurate VAT returns due to misclassified Shopify transactions.

If HMRC finds errors, you could face penalties or backdated tax bills. Keeping your books in order with Link My Books ensures your VAT records are accurate and compliant.

What Do I Need to Know About VAT on Shopify Fees in the UK vs. Abroad?

VAT rules differ based on your business location:

UK Businesses

• Shopify doesn’t charge VAT, so you must apply the reverse charge mechanism on your VAT return.
• If your turnover is over £85,000, you must register for VAT and charge VAT on taxable sales.

EU Businesses

• If you’re VAT-registered, Shopify also doesn’t charge VAT, and the reverse charge applies.
• You might need to register for OSS (One-Stop Shop) if selling to multiple EU countries.

Non-UK/EU Businesses

• Shopify fees generally don’t include VAT, but local tax rules may apply.

Staying VAT-compliant can be complex, but Link My Books automates VAT reporting so you don’t miss anything.

Make Shopify VAT Simple with Link My Books

Handling VAT on Shopify fees can be frustrating, time-consuming, and confusing, especially if you’re dealing with reverse charge rules, VAT compliance, and manual bookkeeping errors.

The Solution? Automate It.

With Link My Books, you:
✔️ Never worry about VAT miscalculations again, we apply the right tax treatment automatically.
✔️ Sync Shopify fees, sales, and payouts seamlessly to Xero or QuickBooks.
✔️ Stay 100% VAT-compliant without spending hours on bookkeeping.

🚀 Stop wasting time and eliminate VAT headaches. Start your free trial of Link My Books today!