Running a WooCommerce store in the UK means getting VAT right from the start. HMRC expects accurate VAT calculations, proper recordkeeping, and timely submissions. Even small mistakes can lead to penalties, rejected returns, or complications when it is time to file your accounts. WooCommerce has built-in tax tools, but they only work correctly when configured properly with the right UK VAT rates and settings. This guide focuses entirely on how to set it up correctly, step by step.
Before You Start Adding VAT in WooCommerce: Register for VAT
Before touching any WooCommerce settings, you must first understand your VAT obligations with HMRC.
You must register if your total taxable turnover for the last 12 months goes over £90,000. You must also register if you realise that your total taxable turnover is going to go over the £90,000 threshold in the next 30 days. You must notify HMRC within 30 days of the end of the month in which you exceeded the threshold. Your VAT registration usually takes effect from the first day of the second month after you exceed the threshold.
Businesses can also choose to register voluntarily if their turnover is less than £90,000. Some sellers do this to reclaim VAT on business purchases such as stock, software, and hosting costs.
Overseas businesses making taxable supplies in the UK may be required to register for VAT, and in many cases, there is no UK VAT registration threshold.
It is also worth noting that you do not have to register if you only sell VAT-exempt or out-of-scope goods and services. However, this applies only in specific cases, and most WooCommerce sellers will not fall into these categories.
Finally, businesses may deregister for VAT if their taxable turnover falls below £88,000. This threshold sits just below the registration threshold to prevent businesses from constantly registering and deregistering.
Once HMRC issues your VAT number, keep it to hand as it must be displayed on your store and all customer invoices.+
UK VAT Rates You Need to Know for WooCommerce
There are three VAT rates you will need to configure in WooCommerce. The standard rate is 20% and applies to most goods and services. The reduced rate is 5% and applies to certain goods such as domestic fuel, child car seats, and mobility aids. The zero rate is 0% and applies to goods such as most food, books, and children’s clothing. Zero-rated sales still count towards your taxable turnover when assessing the £90,000 registration threshold, so they must not be ignored.
Some goods and services are VAT exempt entirely, such as financial services and insurance. These are different from zero-rated goods and do not count towards your taxable turnover at all.
Step 1: Enable Taxes in WooCommerce
To configure taxes in WooCommerce, you first need to enable the Tax settings tab. From your store’s WP Admin dashboard, navigate to WooCommerce > Settings > General. Scroll down to the Taxes and coupons section and select the Enable tax rates and calculations checkbox. Scroll to the bottom of the page and click Save changes.
Without completing this step, the Tax tab will not appear in your WooCommerce settings.
Before moving on, make sure your store address is set correctly. WooCommerce uses your business location to decide which VAT rules apply, how shipping tax is calculated, and how orders are categorised for UK and international customers. An incorrect postcode or a missing country field can cause the system to apply the wrong VAT rate. Also, confirm your store currency is set to GBP to ensure VAT is calculated and reported correctly.
Step 2: Configure Your Tax Options
Once enabled, access the WooCommerce tax settings in the Tax tab by going to WooCommerce, then Settings, then Tax.
Prices Entered With Tax
The Prices entered with the tax option are perhaps the most important setting when you manage taxes in your store. It determines how you enter your product prices. There are two options: Yes, I will enter prices inclusive of tax, where you enter all product prices including your store’s base tax rate, or No, I will enter prices exclusive of tax, where you enter product prices without tax.
For example, if you want a product to cost £9.99 including taxes and your store is UK-based with a tax rate of 20%, if you select Yes, I will enter prices inclusive of tax, you would enter £9.99 as the total product price. WooCommerce calculates the underlying net price and VAT component from the total, and may round values depending on your store’s decimal settings. If you select No, I will enter prices exclusive of tax; if you want the same total price, enter £8.325 as the product price. WooCommerce then adds 20% on top and offers the same rounded price of £9.99.
For UK consumer-facing stores, prices are generally expected to be displayed inclusive of VAT under consumer pricing rules.
Calculate Tax Based On
calculations. There are three options: Customer shipping address (default), Customer billing address, or Shop base address. If the shop’s base address is selected, the taxes are always calculated based on your store’s location, regardless of the customer’s address.
For most UK consumer stores, the customer’s shipping address is typically used as the default setting.
Shipping Tax Class
The Shipping tax class setting determines how WooCommerce calculates tax on shipping costs. The setting defaults to the shipping tax class based on cart items. In this case, WooCommerce applies shipping tax based on the tax class of the items in the cart. For example, if a product like baby clothes has been assigned a reduced tax class, then the tax rate from that class would also apply to the shipping charge.
Display Settings
The Display prices in the shop setting determine how prices are displayed throughout your store and catalogue. The Display prices during cart and checkout settings determine how prices are displayed in your cart and during checkout. Choose Including tax or Excluding tax from the dropdown menu for each.
Keep these settings consistent with each other. If the Prices entered with tax, Display prices in the shop, and Display prices during cart and checkout settings are mixed, it can cause the calculated price to have more decimal precision than is allowed to be displayed, leading to prices being rounded in unexpected ways. If these settings are inconsistent, WooCommerce may display a notice warning about mismatched tax display configurations. Clicking Use recommended settings updates all of these settings to match the one set for Prices entered with tax.
Display Tax Totals
The Display tax total setting determines whether multiple taxes are displayed as a single total at checkout or as an itemised list of taxes. When set to Itemized, this can also be useful for displaying the tax rate name on cart and checkout pages, especially when only one tax rate per location is used. For UK stores, Itemized display is commonly used, and the tax name is often set as VAT for clarity.
Step 3: Add the UK Standard VAT Rate
Tax classes are displayed as subtabs at the top of the Tax settings screen. Click on a tax class to view its tax rates table, which is where you define the tax rates to apply to your customers.
Click on Standard Rates, then click Insert row and fill in the following:
In the Country code field, specify the two-digit country code that the rate applies to. In the Rate % field, enter the tax rate. In the Tax name field, enter a name for your tax, such as VAT. In the Priority field, assign a priority to the tax rate. Only the first rate that matches per priority will be used. 1 is the highest priority.
For UK VAT, enter GB as the country code, leave the State and Postcode fields blank to apply the rate nationwide, enter 20.0000 in the Rate % field, and enter VAT as the Tax name. Click Save changes.
Step 4: Add Reduced Rate and Zero Rate Classes
Default standard rates are sufficient for most cases, but if you sell goods that require different tax classes, you can add them here. Add one tax class per line. After clicking Save changes, your added tax classes will appear as sub navigation links near the top of the page. From there, you can click on each to add and manage the tax rates within that class.
Some items in the UK are not taxed at the standard rate. Examples include children’s clothing, most books, and certain food items. In WooCommerce, you can create additional tax classes such as Reduced Rate and Zero Rate. After creating them, open each class and add the correct rate. For a reduced rate, enter GB as the country code and 5.0000 as the rate. For a zero rate, enter GB and 0.0000.
Only assign these classes to products that genuinely qualify under HMRC rules. When in doubt, check the HMRC VAT rates guidance on GOV.UK or consult a tax professional.
Step 5: Assign Tax Classes to Products
Once your tax rate tables are set up, assign the correct class to each product. Go to Products, then All Products, and edit a product. In the Product data section under the General tab, find the Tax class dropdown and select the appropriate class. Click Update to save.
Products without a specific tax class assigned will automatically use the standard 20% VAT rate.
Step 6: Import and Export Tax Rates via CSV
If you have a large number of tax rates to manage, WooCommerce allows you to handle them in bulk. Tax rates can be imported and exported using CSV files. To create a tax rate CSV file from which to import rates, manually enter a rule first and then do a CSV export. It will generate a tax rule CSV file containing the 10 columns required for a tax rate import, serving as a template for changes or additions. The columns are Country code, State code, ZIP or Postcode, City, Rate%, Tax name, Priority, Compound, Shipping, and Tax class.
This is particularly useful if you sell internationally and need to manage VAT rates across multiple countries in one go.
Step 7: Test Your UK VAT Setup for WooCommerce
After entering all your VAT rules, run a few test orders to make sure everything works. Add products with different VAT classifications to the cart and confirm that WooCommerce displays the right VAT rate and totals at checkout. Check your order confirmation emails and your order reports to confirm that VAT is shown correctly. If you notice rounding issues or odd totals, adjust your number formatting in WooCommerce’s tax settings.
Step 8: View and Export Tax Reports
Tax reports can be found in WooCommerce > Analytics > Taxes. These reports provide a breakdown of VAT collected by period and can be exported to your accounting software. Reviewing these regularly ensures your VAT data is clean and ready for your quarterly return.
Step 9: Connect to Making Tax Digital Compatible Software
All VAT-registered businesses are required to keep digital records and submit VAT returns using HMRC-compatible software under Making Tax Digital rules, which also require digital links between systems. WooCommerce does not submit VAT returns to HMRC directly. You can use the official WooCommerce Xero plugin or a tool like A2X to automatically sync orders, VAT, and payments. Once connected to HMRC through MTD-enabled software, you can prepare and submit VAT returns straight from your accounting platform.
Key UK VAT Rates at a Glance
Conclusion
Setting up VAT in WooCommerce correctly is a series of straightforward steps once you know where each setting lives. Enable taxes, set your store address accurately, configure the standard 20% UK VAT rate under the GB country code, add reduced and zero rate classes where your products require them, assign those classes to the right products, and connect your store to Making Tax Digital-compatible software for submissions. Test thoroughly before going live and review your tax reports every quarter. The £90,000 registration threshold and 30-day notification rule and should be checked periodically for updates. When in doubt about which rate applies to a specific product, always check the latest guidance on GOV.UK or consult a qualified UK tax professional.
