HMRC VAT and Making Tax Digital settings to check before choosing an ecommerce platform

What to take away

Why VAT settings are a pre-purchase decision, not a post-launch fix

VAT configuration sits underneath your product catalogue, your invoices and your returns. Moving it after launch means re-mapping every SKU, re-issuing documents and reconciling periods you have already filed. That is a migration project, not a settings change.

Platform demos rarely show a UK VAT screen. They show checkout, themes and shipping. Ask for the tax configuration area in the sandbox and look at how many rates one product can carry.

A single product can be standard-rated, zero-rated or exempt depending on what it is and how it is sold. Your platform must hold that distinction per line item, not per order.

Digital services sold to consumers are taxed where the customer lives, which means EU VAT rates as well as UK ones. If you sell abroad, your platform needs a rate table you can edit without a developer.

Ask your accountant to review the tax settings before you sign, alongside the exit terms. Our blank platform budget with comparable units sets out VAT review and exit costs next to the licence fee, and the total is small next to a failed migration.

A typical hourly rate for VAT and bookkeeping work in England is £30 to £75 outside London, so a recurring monthly fix on the tax settings is a real bill. HMRC's late submission penalty for a VAT return starts at £400, which lands on top.

VAT rates on different goods and services and how each platform maps them

The rates themselves are set out in VAT rates on different goods and services - GOV.UK. Standard rate applies to most goods. Zero rate covers most food, children's clothes and books. Reduced rate covers domestic fuel and children's car seats.

At the time of writing the standard rate is 20 per cent, the reduced rate is 5 per cent and the zero rate is 0 per cent. HMRC publishes the current rates, so confirm them before you load your catalogue.

Your platform needs at least three active rates plus an exempt flag. Some catalogues also need a fifth for outside-scope items such as certain financial services.

Mapping happens at product level, variant level or both. A children's T-shirt in a small size can be zero-rated while the same design in an adult size is standard-rated. If your platform only maps at product level, you will misdeclare.

Shipping is its own line. Delivery charges follow the VAT rate of the goods in most cases, but mixed baskets create a blended charge. Check whether your platform can split shipping VAT by line.

Discounts, gift cards and deposits all change the tax base. A platform that applies VAT after a site-wide discount will underpay. Test a discounted zero-rated item in the sandbox and read the tax line.

The rules behind all of this sit in VAT Notice 700, HMRC's main guide to VAT. It covers tax points, valid invoices, credit notes, record keeping, bad debt relief and the schemes that shift when VAT becomes due.

The VAT guide (VAT Notice 700) - GOV.UK is the version to read before you compare tax screens, because a platform that cannot reproduce those rules leaves you correcting returns by hand.

For a wider view of the rules that touch a store, see our guide to UK ecommerce regulations.

Where the VAT number, rate and scheme fields live in Shopify, WooCommerce and BigCommerce

Every platform hides these fields in a different place. The table below names each platform and the area to look in, based on the admin menus merchants see in UK builds. Menu names change between releases, so search the admin for "tax" and "VAT" as well as browsing.

Watch the rolling twelve-month test, not just your accounting year. A strong quarter can push you over the limit earlier than you expect, and you must act within the time HMRC allows.

If you are already registered, check that the platform can show your VAT number on every document a customer might need for their own records. B2B buyers will ask.

Scheme choice matters at checkout for cash accounting, because VAT is due when you are paid, not when you invoice. Some platforms date the tax point at order creation, which conflicts with cash accounting. Raise this with your accountant and note it in your selection scoring.

Our platform selection checklist with independent gates for payments, data, access and exit puts tax configuration in the same gate as data export, which is where it belongs.

The VAT registration threshold, and why no platform watches it for you

The VAT registration threshold is a turnover test, not a sales target. A UK business must register once its taxable turnover passes the threshold over any rolling twelve months. Taxable turnover means standard-rated, reduced-rated and zero-rated sales. Exempt sales and outside-scope income do not count towards it.

The registration threshold is £90,000 of taxable turnover, and the deregistration threshold is £88,000. Both figures have been at that level since 1 April 2024, so check the current ones on HMRC before you plan.

There is a second test. If you expect taxable turnover to pass the threshold in the next thirty days alone, you must register then rather than waiting for the twelve-month figure to catch up. Growing online sellers hit this after one good launch or a wholesale order.

The rolling window moves every month. You check it at the end of each month, looking back twelve months, and the clock starts again as old months drop off. A £20,000 drop in one month can take you back under the line even as annual sales grow.

Registration takes effect from a date set by the rules, usually the first day of the second month after you exceed the threshold, or earlier if you agree it with HMRC. Your platform does not calculate any of this. The tests and the deadlines are on Register for VAT: When to register for VAT - GOV.UK.

Build the threshold into your platform budget as a cost line with a date attached. Once you register, prices shown to consumers usually need a VAT-inclusive display, and every invoice changes.

Where each tax setting lives

Paths below match the admin menus in common UK builds at the time of writing. Take them as the route to the setting, since releases rename menu items. Each figure describes what is visible on the screen and what to inspect.

Figure 1: VAT number and price display. Hosted SaaS admin, Settings, then Taxes and duties. The screen shows a VAT number box, a tick box for prices including tax, and a save button for the tax region. Check that the number box accepts a GB prefix and prints on documents.

Figure 2: Per-product rate. Product page, Pricing section. The screen shows a tick box labelled charge tax on this product and a tax class dropdown beside the price field. This is the control that decides whether mapping stops at product level or continues to variants.

Figure 3: Shipping tax. Settings, then Shipping and delivery, then a tax section. The screen shows a tick box for charging tax on shipping rates and, on some platforms, a separate rate selector. Inspect whether the shipping line inherits the rate of the goods in a basket.

Figure 4: Scheme and tax point. Settings, then Taxes, then an accounting or scheme subsection. The screen shows a choice between cash and accrual treatment and, where present, a date field for when the tax point is set. Platforms that offer no choice here date the tax point at order creation.

Figure 5: Rate table. Settings, then Taxes, then Rates or Tax classes. The screen shows a grid of rows, each with a name, a country and a percentage, plus an add rate button. Count how many rows you can add without contacting support.

Figure 6: Export. Orders, then Export, then a column picker. The screen shows the available CSV columns, including tax name, tax rate, tax amount, net amount and country. This is the screen that decides whether your Making Tax Digital records leave the platform intact.

Figure 7: Connectors. Apps or Integrations, then search for tax. The screen shows accounting and filing connectors with pricing and permissions. Check what each connector reads before you assume the platform files for you.

Take these seven screens in one sitting in the sandbox. If a figure has no equivalent screen, that setting is missing from the platform, not hidden from you.

Making Tax Digital records: what a platform must export for HMRC

Making Tax Digital requires digital records and a digital link to HMRC. For VAT, that means your platform or your bridging software must produce the figures in a format HMRC accepts, with a clear audit trail from transaction to return.

The platform does not have to file for you. It has to give you, or your accountant, the underlying data without manual retyping. A CSV export is usually enough if it carries the right fields.

Sole traders and landlords moving to Making Tax Digital for Income Tax face the same principle: digital records, digital updates. The step-by-step route is on Making Tax Digital for Income Tax for sole traders and landlords: step by step - GOV.UK.

Check these export fields before you buy:

If any field is missing, ask how you get it. Some platforms expose it through an API, which is fine if your accountant can consume it. Others require a paid app.

Test the export with a month of real data, including a refund and a zero-rated line. Reconcile the totals to your bank and to the platform dashboard. Differences usually sit in shipping, discounts or rounding.

Keep the exported files. HMRC can ask to see records for a period after you file, and a platform that changes its export format mid-year will not help you reconstruct old data.

Postponed import VAT accounting and the fields merchants importing stock must check

If you import goods from outside the UK, postponed import VAT accounting lets you account for import VAT on your VAT Return instead of paying at the border. That improves cash flow and removes a reclaim step.

The rules and the conditions are on Check when you can account for import VAT on your VAT Return - GOV.UK. Read them before you choose a platform, because the platform must store the data your customs entries generate.

Your platform needs to hold or link to these fields:

If your platform cannot store a customs reference against a purchase or a stock item, you will keep that data in a spreadsheet. That is a reconciliation risk, not a disaster, but it should be a scored item in your comparison.

Check how the platform handles landed cost. If it allocates freight and duty into product cost, make sure the VAT element is separated, or your margin reports will be wrong.

For merchants selling imported goods, the VAT treatment of the goods themselves still follows the normal rules. A zero-rated food import does not become standard-rated because it crossed a border.

Reporting fields, invoices and the audit trail HMRC expects

An invoice is a legal document. It must show your VAT number, the tax point, the rate applied and the VAT amount, among other things. Your platform must produce compliant invoices for every sale, including refunds.

Check the invoice template in the sandbox. Look for the VAT number, the customer's VAT number field for B2B, the rate breakdown for mixed baskets and a credit note format that references the original invoice.

HMRC reporting fields are the boxes on the VAT Return. Box 1 is VAT due on sales and other outputs. Box 2 is VAT due on acquisitions from EU member states. Box 3 is the total of boxes 1 and 2.

Box 4 is VAT reclaimed on purchases and other inputs. Box 5 is the net VAT to pay or reclaim.

Box 6 is the total value of sales excluding VAT. Box 7 is the total value of purchases excluding VAT. Boxes 8 and 9 cover goods dispatched to and acquired from EU member states, and most UK sellers now show zero in both.

Your export must feed every box that applies to you, split by period. If your platform reports gross sales only, your accountant rebuilds boxes 6 and 7 by hand every quarter.

Keep an audit trail from order to return. The order record, the invoice, the payment record and the export file should all reconcile. Any gap is a question you cannot answer quickly if HMRC asks.

Test a return period end to end before launch. Pick a month, run the export, prepare the return in your software and check the boxes against the platform totals. Fix discrepancies while the volumes are small.

A pre-purchase checklist of ecommerce platform VAT settings to sign off

Run this checklist with your accountant before you sign a contract. Each line is a pass or fail, not a score.

If two or more lines fail, treat that as a reason to look again. A platform that cannot meet the checklist will push cost onto your accountant every quarter, and that cost recurs.

Get the answers in writing, in the sandbox, with your own products loaded. A sales promise is not a configuration.

Common questions

Do I need to register for VAT before I choose a platform?

Not necessarily, but you need to know when you will cross the threshold. The platform you choose now should handle VAT properly from the day you register.

Can I use any ecommerce platform for Making Tax Digital?

Most can, if they export the right fields or connect to bridging software. Check the export before you buy, not after your first return.

Does the platform file my VAT return?

Rarely. Some connect to filing software. The platform's job is to keep digital records and give you the data in a usable format.

What if I sell zero-rated food and standard-rated gifts in one order?

Your platform must apply the correct rate per line and show the breakdown on the invoice. Test this exact basket in the sandbox.

How long should I keep platform tax records?

HMRC expects records to be kept for a set period after the return is filed. Export and store them yourself rather than relying on the platform's retention.

Does the platform calculate which boxes my figures go in?

Some connectors map totals to the nine boxes automatically. Check the mapping screen, because a connector that guesses wrong sends your VAT to the wrong box.