Shopify Tax
Have you woken up to an email this morning from Shopify talking about ‘Shopify Tax’ and the impending additional cost. Are you not sure what this means or worried about the additional costs involved? Don’t worry, we’ve pulled together a high level overview of it below for you.
Shopify tax for UK businesses
There are 3 levels of the new Shopify Tax system. Manual Tax (free), Basic Tax (free), Shopify Tax (% Fee but Capped)
If you’re only selling to the UK/EU market, as it stands at the moment the Basic tax is very much inline with your current experience with the tax set up on shopify. You can create manual tax overrides but you handle the registrations and taxes are based of off that.
Where the newer Shopify tax excels though is it’s automation and recommendations into tax rates based on product categories, marginal tax and it’s reporting. This is more important when you’re selling in the US where the tax rules can vary significantly based on the types of products, the time of year (Shout out to Texas and their tax holiday) and the state your delivering too.
If your only selling to the UK/EU, Basic tax is probably more than enough for your needs
If your selling significant amounts into the US, Shopify Tax is worth Exploring in more depth.
The caveat on this being that this is our understanding of Shopify tax as it stands right now. This is a part of the Shopify system that is being actively worked on an improved by Shopify so new features and functionality will more than likely be introduced over the coming months.
Understanding the Benefits of Shopify's New Tax System for UK Businesses
As a UK business expanding into the US market, staying compliant with local tax regulations can be a challenge. Shopify has introduced a new tax system that simplifies how you manage taxes when selling to the US, offering three main options: Shopify Tax, Basic Tax, and Manual Tax. Here’s a breakdown of each and their benefits, along with how these changes could affect your UK-based business.
Shopify Tax: The Automated Solution
Shopify Tax is the latest offering designed for businesses looking to streamline their tax management. It automatically applies the right sales tax rates based on the customer’s location and keeps up with changes in tax laws. For UK businesses selling to the US, this is a huge time-saver, ensuring you stay compliant without having to constantly monitor tax rate changes.
Key Benefits:
Automatic Tax Calculation: It calculates taxes for you, reducing manual effort and errors, which can be especially useful when managing different tax rates across US states from overseas.
Real-Time Rate Updates: As US tax laws change, Shopify Tax ensures you’re always applying the most current rates, minimizing the risk of compliance issues and penalties for your UK-based business.
Nexus Management: It helps you understand your economic nexus status across states, making it easier to determine where you need to collect taxes as your sales volume grows.
Impact on UK Businesses: Using Shopify Tax can provide peace of mind, knowing that even as tax rules evolve in the US, your business remains compliant without the need for constant manual updates. It’s especially helpful if your business is looking to scale quickly in the US, as it minimizes the need for deep tax expertise.
Basic Tax: A Reliable Default
If your business doesn’t need the full automation of Shopify Tax, Basic Tax is a solid option. This system is great for businesses with straightforward tax needs. It uses standard tax rates that are automatically applied but lacks the more advanced features like nexus tracking found in Shopify Tax.
Key Benefits:
Simple Setup: It’s quick to set up and requires less attention, ideal for smaller businesses or those with lower US sales volumes.
Automatic Rate Application: While not as detailed as Shopify Tax, it still ensures taxes are applied at appropriate rates based on customer locations.
Cost-Effective: It’s included with all Shopify plans, providing an economical way to manage US sales tax.
Impact on UK Businesses: For UK businesses with smaller US sales volumes or those new to the market, Basic Tax offers a no-fuss solution that doesn’t require in-depth tax knowledge. It allows you to focus on growing your brand presence in the US, knowing that the tax basics are handled.
Manual Tax: Full Control, But More Effort
For businesses that want complete control over tax rates, Manual Tax remains an option. This approach allows you to set your own rates and adjust them as needed. While it offers flexibility, it requires a deep understanding of US tax regulations and regular maintenance to stay up-to-date.
Key Benefits:
Customization: You have full control over the tax rates you apply, useful for businesses with specific needs.
No Automation Fees: Since it doesn’t rely on Shopify’s automation features, it can be a cost-saving option if you have the resources to manage taxes manually.
Tailored Rates: If you sell products that require unique tax considerations, such as food or digital products, Manual Tax lets you customize as needed.
Impact on UK Businesses: Manual Tax can be a viable choice for UK businesses with niche products or those that have a strong understanding of US tax laws. However, it requires a hands-on approach and consistent monitoring of legal changes, which can be challenging when managing from abroad.
Which Option is Right for You?
Choosing between Shopify Tax, Basic Tax, and Manual Tax depends on the complexity of your US sales operations. For UK businesses aiming for seamless integration into the US market with minimal effort, Shopify Tax is a top choice. If your operations are more straightforward, Basic Tax provides a reliable, hands-off approach. And for those who prioritize flexibility and have the resources for hands-on management, Manual Tax could be the best fit.
By selecting the right tax system, you can focus on what you do best—growing your business—while Shopify handles the complexities of US sales tax. This is especially valuable for UK businesses looking to expand into the US, ensuring a smooth transition into new markets without the headaches of ever-changing tax laws.
Quick Links
You can read more about shopify tax at the following places:
Shopify Help Centre: https://help.shopify.com/en/manual/taxes/us/choose-tax-service
Shopify blog: https://www.shopify.com/blog/shopifytax
Shopify announcement: https://www.shopify.com/tax