Shopify Tax Migration: What UK & EU Merchants Should Know

Shopify recently notified merchants in the UK and EU that it will migrate them from their existing tax services to the new Shopify Tax UK/EU.

In this guide, we provide an overview of what merchants should understand about this change.

You can also learn more about the changes and what they might mean for your business in this webinar featuring Philip Oakley from Outserve.

Note: A2X is not directly affiliated with Shopify, and merchants who have questions about how the Shopify Tax changes will impact their store should contact Shopify directly. We’re aiming to provide guidance so that merchants can prepare for any accounting/bookkeeping impacts of the migration to Shopify Tax.

What does the migration to Shopify Tax mean for merchants in the UK and EU?

• From 28 October 2024, Shopify merchants in the UK and EU will be automatically migrated from their existing tax services to the new Shopify Tax for UK and EU.
• Shopify Tax will be free for merchants in the UK and EU until 31 December 2024.
• From 1 January 2025, merchants who use Shopify Tax as their tax service will be charged the applicable pricing and fees indicated in this Shopify article.
• Merchants can opt out of Shopify Tax. Contact Shopify for more information about this.
• Merchants can choose between Shopify Tax, Basic Tax, and Manual Tax as tax management options in Shopify.

What is Shopify Tax?

Shopify Tax is being introduced for merchants in the UK and EU to simplify tax compliance and ensure accurate VAT collection. The service provides automatic updates on tax rates, VAT-compliant invoices, and features like Tax Liability Insights (TLI). It is intended to help merchants manage tax calculations across different regions more efficiently.

Note that Shopify Tax does not remit VAT on behalf of merchants in the UK or EU. While Shopify Tax offers tools to calculate, track, and report VAT obligations, merchants are responsible for filing and remitting VAT to the relevant tax authorities themselves​ according to local regulations.

Learn more about Shopify Tax here, and learn more about managing VAT on Shopify here.

What are the fees associated with Shopify Tax?

Starting 1 January 2025, Shopify Tax will introduce fees for UK merchants whose annual sales exceed £100,000. The fees are structured as follows:

• Standard Plans: 0.25-0.35% per transaction, capped at £0.99 per order.
• Shopify Plus Plan: Starting at 0.15% per transaction, capped at £0.99 per order.

These fees apply to the total transaction amount, including taxes and shipping. For instance, a £30 sale would incur a £0.10 fee, while a £20,000 sale would be capped at £0.99.

There is also an annual fee cap of £5,000 per region. This means that regardless of your total sales volume, the maximum amount you’ll be charged in Shopify Tax fees per year is £5,000 for the UK region.

Learn more about Shopify Tax pricing here.

Should UK and EU merchants use Shopify Tax?

Whether UK and EU merchants should use Shopify Tax depends on their business needs and circumstances.

Shopify Tax is generally well-suited for many businesses seeking an automated VAT solution. Some benefits of Shopify Tax include:

• Automated VAT calculations and compliance – Shopify Tax ensures correct VAT rates are applied at checkout and provides VAT-compliant invoices. Features like Tax Liability Insights (TLI) help merchants track liabilities, reducing time spent on compliance and minimizing errors​.
• Simplified setup (especially across different regions) – It’s particularly useful for businesses selling in multiple regions, removing some complexities of VAT management across the UK, EU, and beyond​.

However, businesses with complex tax needs or existing systems may need to evaluate whether Shopify Tax is the best fit. Consulting a tax advisor can help determine the best course of action.

Some other considerations for using Shopify Tax include:

• It may overlap with existing VAT systems – Businesses with established third-party VAT solutions might prefer to opt out to avoid disruptions​.
• Fees for high-volume sellers – Starting 1 January 2025, businesses generating over £100,000 annually will be charged a 0.25-0.35% transaction fee (on non-Plus plans), which may impact profitability for high-volume merchants​.

To our understanding at A2X, you can opt out of Shopify Tax any time – so you could try it out and see if it’s the best solution for your business.

How will Shopify Tax impact my numbers?

Once Shopify Tax is no longer free (starting in 2025 for businesses exceeding £100,000 in sales), applicable fees will be charged based on sales volume. This fee will need to be accounted for in your financial reports.

These transaction fees should be recorded as a business expense in your accounting system.

You may need to update your budgeting and forecasting processes to account for these additional costs as part of your cost of sales.

The migration to Shopify Tax presents a great opportunity for merchants not currently on a Shopify Plus plan to consider upgrading, as Shopify Plus offers lower Shopify Tax fees, starting at just 0.15%.

Can I claim Shopify Tax fees as a business expense?

For VAT-registered merchants in the UK and most of the EU, Shopify fees are generally subject to the reverse charge mechanism.

This means the merchant records both the input and output VAT on their VAT return, creating a neutral VAT effect (i.e., no net VAT payment) but ensuring compliance by reporting the transaction accurately in the return.

Learn more about managing VAT on Shopify merchant fees.

How can A2X help?

A2X will proactively monitor Shopify payouts during the transition period and provide any additional steps that may need to be taken.

Learn more about how A2X works with Shopify and Xero in this video.