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Value Added Tax (VAT)

Overview

This topic provides a sample procedure for setting up a 20% VAT in the U.K. for sales to retail customers. For other tax rates and countries, follow the general procedure but enter specific information that corresponds to your country, VAT rate, customer types, and so on.

Note: Before proceeding, make sure to find out which rules and regulations apply to VAT in your area.

To set up and then enable a VAT in your store, you follow these general steps:

Step 1: Set up customer tax classes

Step 2: Set up product tax classes

Step 3: Set up tax zones and rates

Step 4: Set up tax rules

Step 5: Apply tax classes to products

Step 6: Set up general tax settings

Step 1: Set up customer tax classes

To set up example VAT customer tax classes:

  1. From the Admin panel, select Sales > Tax > Customer Tax Classes.
  2. Check that there is a customer tax class that is appropriate to use with the VAT. For this example, ensure that there is a customer tax class named Retail Customer. If Retail Customer does not exist, add it using the Add New button.

Step 2: Set up product tax classes

To set up example VAT product tax classes:

  1. From the Admin panel, select Sales > Tax > Product Tax Classes.
  2. Click the Add New button and add three new classes:
    • VAT Standard
    • VAT Reduced
    • VAT Zero
    • Click the Save Class button for each new class that you add.

Step 3: Set up tax zones and rates

To set up example VAT tax zones and rates:

  1. From the Admin panel, select Sales > Tax > Manage Tax Zones & Rates.
  2. For this example you can choose to remove the U.S. tax rates, or leave them as they are.
  3. Click the Add New Tax Rate button. Add three new rates:
    • VAT Standard
      • Tax Identifier: VAT Standard
      • Country and State: United Kingdom
      • Rate Percent: 20.00
    • VAT Reduced
      • Tax Identifier: VAT Reduced
      • Country and State: United Kingdom
      • Rate Percent: 5.00
    • VAT Zero
      • Tax Identifier: VAT Zero
      • Country and State: United Kingdom
      • Rate Percent: 0.00
  4. Click the Save Rate button for each new rate that you add.

Step 4: Set up tax rules

A tax rule is a combination of a customer tax class, a product tax class, and a tax rate.

To set up example VAT rules:

  1. From the Admin panel, select Sales > Tax > Manage Tax Rules.
  2. Add three new tax rules:
    • VAT Standard
      • Name: VAT Standard
      • Customer Tax Class: Retail Customer
      • Product Tax Class: VAT Standard
      • Tax Rate: VAT Standard Rate
    • VAT Reduced
      • Name: VAT Reduced
      • Customer Tax Class: Retail Customer
      • Product Tax Class: VAT Reduced
      • Tax Rate: VAT Reduced Rate
    • VAT Zero
      • Name: VAT Zero
      • Customer Tax Class: Retail Customer
      • Product Tax Class: VAT Zero
      • Tax Rate: VAT Zero Rate
  3. Click the Save Rule button to save your VAT tax rules.

Step 5: Apply tax classes to products

To apply example VAT classes to products:

  1. From the Admin panel, select Catalog > Manage Products.
  2. Select a product from your catalog to edit.
  3. In the Product Information tab, in the General section, find the Tax Class option.
  4. From the list, select the VAT class that applies to the product.
  5. When finished, click the Save button.

Step 6: Set up general tax settings

For step-by-step instructions, see Setting Up General Tax Calculations.

See also:

Understanding Tax Settings

Video: Set Tax Calculation

Video: Optimize Your Tax Settings