As shipping may be treated as part of the service you are providing, VAT/GST taxation may include the shipping costs as well. The Value Added Tax / Goods and Services Tax add-on makes it possible to add VAT rates on the delivery options available to your customers and display this information at checkout.
The add-on “VAT/GST” enables you to assign special tax classes to the shipping methods used in the store so VAT is added to the cost of delivery. By default, all delivery costs are VAT-exclusive.
There are two default shipping tax classes that can be used to add VAT to delivery costs - Zero VAT rate and Items Max VAT rate. The difference between these two tax classes is that the tax class Zero VAT rate does not add VAT to delivery costs whereas the class Items Max VAT rate does. The VAT rate added to the delivery costs by the tax class Items Max VAT rate equals the maximum VAT rate that is applied to the products in the shopping cart.
For example, there are 2 products in the cart:
Product 1 at the cost of £100 (VAT 20% included, i.e. price £83.33 + VAT £16,67);
Product 2 at the cost of $100 (VAT 5% included, i.e. price £95,24 + VAT £4,76). If the tax class Items Max VAT rate is applied to the delivery method chosen by the buyer, the VAT rate of 20% will be added to the shipping costs and included into the total amount of VAT 20% displayed to the buyer.
In order to apply VAT/GST taxation to shipping, follow the steps below.
1. Configure your delivery options via Store setup > Shipping.
2. Specify the tax classes that should be used for them.
In the list of shipping methods, locate the Tax class column:
To change the tax class for a specific shipping option, click on the tax class name displayed opposite the name of the respective shipping method. This will reveal a dropdown box allowing you to change the tax class. The options available for selection from the Tax class dropdown on the shipping settings page will vary depending on what tax classes have been configured in your store. You can choose any tax class with the configured VAT rate and apply it to shipping.
Zero VAT rate: Choose this tax class if you do not need to charge VAT on delivery costs.
Items Max VAT rate (default value): Choose this tax class if you need to charge VAT on delivery costs. The VAT rate added to the delivery costs will equal the maximum VAT rate set on the products being added to the shopping cart.
Any other tax class from the list: Choose a tax class with a configured VAT rate if you need to charge VAT on delivery costs. The VAT rate added to the delivery costs will depend on the VAT rate set for the tax class you have chosen.
3. Click Save changes to activate the settings.