One of the biggest issues we see on checkouts for new Magento sites is using VAT. Typically, for B2C businesses, prices on the website will be inclusive of VAT, but if you set this incorrectly, in your admin, your customers could be getting charged for VAT twice, or not at all.

It’s often one of the points that gets missed in discovery sessions because the whole project team is busy thinking about how the site will look and operate. This usually includes customisation, modules and integrations for developers, so things like VAT can get moved to the sidelines, and then forgotten.

There are a few different ways merchants do VAT on their sites. Here’s a breakdown of how to set the VAT in Magento to accommodate each method.

 

My prices include VAT

If your prices are inclusive of VAT, then you need to set Magento to see your prices that way to avoid VAT being added again at the checkout.

On the Magento 1 admin, you need to go through: System>>Configuration>>Sales>>Tax>>Calculation Settings

taxonprices.png

This will stop the Tax being added on again at the checkout. You can also do the same for your shipping prices in this section.

On Magento 2, you need to go to Stores>>Configuration>>Sales>>Tax>>Calculation Settings.

You can set the catalog prices to including Tax here.

 

I want my Prices broken down on the Checkout

This can be used whether your prices include VAT or not.

When your prices include tax, you may still want your customers to know how much of the price is tax. You need to set your Shopping Cart to display tax:

On M1, go to System>>Configuration>>Sales>>Tax>>Shopping Cart Display Settings

checkouttax.png

Use the dropdown to configure how you would like your tax to be displayed.

On M2, the configuration is the same. You can find it in Stores>>Configuration>>Sales>>Tax>>Shopping Cart Display Settings.

 

My Prices don’t include VAT

For this, you’ll need to set the above to excluding tax, if it isn’t set like this automatically, like so:

extax.png

You then need to create your tax zones and classes so Magento can correctly calculate the tax for your products. All the steps work with each other, so they should all be configured for the best results.

On Magento 1, you need to do the following:

 

Set Up Customer Tax Classes

  1. From the admin, go to Sales > Tax > Customer Tax Classes.

  2. You will need to make sure a customer tax class is available that is appropriate for the VAT, for example, Retail Customer. If have not created yet, click Add New to add it.

 

Set Up Product Tax Classes

  1. From the admin, to go select Sales > Tax > Product Tax Classes.

  2. Click the Add New button and create three new classes:

VAT Standard

VAT Reduced

VAT Zero

3. Click the Save Class button for each new class that you add before creating the next.

 

Set Up Tax Zones and Rates

This works directly with the classes you’ve just created, so Magento will pull the correct VAT rate based on the location and class selected.

  1. From the admin, go to select Sales > Tax > Manage Tax Zones & Rates.

  2. Click the Add New Tax Rate button. For the UK, you can add the following rate:

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

     3. Click the Save Rate button for each rate before creating the next one.

 

Set Up Tax Rules

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

  1. On the Admin menu, select Sales > Tax > Manage Tax Rules.

  2. Add new tax rules as follows:

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

      3. Click the Save Rule button for each rate before creating the next one.

 

For Magento 2, you need to do the following:

Configure Customer Tax Classes

  1. From the admin, go to Stores > Taxes > Tax Zones and Rates.

  2. You will need to make sure a customer tax class is available that is appropriate for the VAT, for example, Retail Customer. If have not created yet, click Add New to add it.

 

Configure Product Tax Classes

  1. On the Admin panel, go to Stores > Tax > Product Tax Classes.

  2. Click the Add New button and create three new classes:

VAT Standard

VAT Reduced

VAT Zero

     3. Click the Save Class button for each new class that you add before creating the next.

 

Set Up Tax Zones and Rates

This works directly with the classes you’ve just created, so Magento will pull the correct VAT rate based on the location and class selected.

  1. From the admin, go to Stores > Tax > Manage Tax Zones & Rates.

  2. Click the Add New Tax Rate button. For the UK, you can add the following rate:

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

     3. Click the Save Rate button for each rate before creating the next one.

 

Set up Tax Rules

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

  1. On the Admin Panel, Stores > Tax > Manage Tax Rules.

  2. Add new tax rules as follows:

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

    3. Click the Save Rule button for each rate before creating the next one.