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 work correctly only when configured with the right UK VAT rates and settings. This guide covers how to set it up correctly, step by step.
This guide is intended for general informational purposes only and does not constitute tax or legal advice. VAT rules can be complex and vary by business circumstances, so you should consult a qualified accountant or tax professional before making VAT-related decisions for your store.
Before You Start Adding VAT in WooCommerce: Register for VAT
You need to register for VAT if your total taxable turnover for the last 12 months goes over £90,000, or if you realise your turnover is going to go over that threshold in the next 30 days. These are two separate tests with different registration dates. Under the historic test, you must notify HMRC within 30 days of the end of the month you exceeded the threshold, and registration takes effect from the first day of the second month after. Under the future prospect test, you must notify HMRC within the 30-day period itself, and registration takes effect from the date you formed that expectation. Your VAT registration usually takes effect from the first day of the second month after you exceed it.
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 need to register for VAT, and in many cases, there is no UK VAT registration threshold.
It’s also worth noting that you don’t 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 won’t 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 handy, as you must display it on your store and all customer invoices.
What Are the Main UK VAT Rates to Configure in WooCommerce?
The main UK VAT rates you may need to configure in WooCommerce are the 20% standard rate, the 5% reduced rate, and the 0% zero rate. Meanwhile, some supplies are VAT exempt and therefore, require different treatment from zero-rated supplies.
The standard rate of 20% applies to most goods and services. The reduced rate of 5% applies to certain goods such as domestic fuel and child car seats. The 0% rate 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 you must not ignore them.
Some goods and services are VAT exempt entirely, such as financial services and insurance. These differ from zero-rated goods and don’t count toward your taxable turnover.
Step 1: How Do You Enable Taxes in WooCommerce?
You enable taxes by turning on the “Enable Tax Rates and Calculations” option in your store’s dashboard. To do this, go to WooCommerce > Settings > General, scroll to the “Taxes and Coupons ” section, select the checkbox and click “Save Changes.”
Without completing this step, the Tax tab won’t 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.
Step 2: How Do You Configure Your Tax Options?
You configure your tax options in the Tax tab by going to WooCommerce, then Settings, then Tax.
Prices Entered With Tax
The Prices entered with tax option is one of the most important settings 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 tax and your store is UK-based with a tax rate of 20%, selecting “Yes, I will enter prices inclusive of tax” means you’d enter £9.99 as the total product price. WooCommerce calculates the underlying net price and VAT component from that total and may round values depending on your store’s decimal settings. If you select “No, I will enter prices exclusive of tax” and want the same £9.99 total, you’d enter £8.325 as the product price. WooCommerce then adds 20% on top and arrives at the same rounded price of £9.99.
For goods sold to consumers, the selling price generally needs to include VAT. In Great Britain, the Price Marking Order requires the selling price of consumer goods, including goods sold online, to include VAT. Northern Ireland has separate price-marking legislation with a similar VAT-inclusive requirement.
Calculate Tax Based On
The Calculate tax based on setting determines which address WooCommerce uses to work out tax on an order. There are three options: Customer shipping address (the default), Customer billing address, or Shop base address. If Shop base address is selected, tax is always calculated based on your store’s location, regardless of the customer’s address.
WooCommerce defaults to Customer shipping address, although the appropriate setting depends on your products, customers and VAT obligations the customer’s shipping address, although the appropriate setting depends on your products, customers and VAT obligations. The customer’s shipping address, although the appropriate setting depends on your products, customers, and VAT obligations.
Shipping ta class setting determines how WooCommerce calculates tax on shipping costs. It defaults to “Shipping tax class based on cart items,” meaning WooCommerce applies shipping tax based on the tax class of the items in the cart. For example, if a product like baby clothes is assigned a reduced tax class, that class’s tax rate also applies to the shipping charge Shipping tax.
Display Settings
The “Display prices in the shop” setting determines how prices are shown throughout your store and catalogue. The “Display prices during cart and checkout ” setting determines how prices are shown in your cart and at checkout. Choose “Including tax” or “Excluding tax” from the dropdown menu for each.
Keep these settings consistent with each other. If “Prices entered with tax,” “Display prices in the shop,” and “Display prices during cart and checkout” are mixed, the calculated price can end up with more decimal precision than can 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 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. When set to Itemised, WooCommerce can show tax amounts separately at checkout rather than combining them into one total. You can also use the tax name, such as “VAT,” to make the tax treatment clearer to customers.
Step 3: How Do You Add the UK Standard VAT Rate?
Tax classes are displayed as subtabs at the top of the Tax settings screen. Click a tax class to view its tax rates table, where you define the rates that apply to your customers.
Click Standard Rates, then click Insert row and fill in the following: in the Country code field, enter the two-letter country code 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; and in the Priority field, set a priority level. The lower the number, the higher the priority, with 1 being the highest; only the first rate that matches a given priority applies.
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. Make sure the “Shipping” box is selected if the 20% rate should also apply to shipping.
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 treatment, you can add additional classes 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, where you can click each one to add and manage its rates.
Some items in the UK aren’t 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: How Do You 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 use WooCommerce’s Standard tax class. If you have configured that class with a 20% VAT rate, those products will be charged at 20%.
Step 6: How Do You Import and Export Tax Rates via CSV?
If you have many tax rates to manage, WooCommerce lets you handle them in bulk using CSV files. To build a template, manually enter one tax rule first, then export it as a CSV. The exported file will contain the 10 columns required for a tax rate import: Country code, State code, ZIP or Postcode, City, Rate%, Tax name, Priority, Compound, Shipping, and Tax class. You can then use this file as a template for further changes or additions.
This is particularly useful if you sell internationally and need to manage VAT rates across multiple countries in one go.
Step 7: How Do You 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 order reports to confirm VAT is shown correctly. If you notice rounding issues or odd totals, review your tax display settings and the “Round Tax at Subtotal Level” option. WooCommerce warns that mixing inclusive and exclusive settings across price entry and display can also cause unexpected rounding.
Step 8: How Do You View and Export Tax Reports?
Tax reports can be found under WooCommerce > Analytics > Taxes. These reports provide a breakdown of tax collected over a selected period and can be downloadable as CSV files. You can use the data to reconcile your WooCommerce sales and tax figures with your accounting records. Reviewing these reports regularly can help you reconcile your WooCommerce tax figures with your accounting records before preparing a VAT Return.
Step 9: How Do You Connect WooCommerce 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
Frequently Asked Questions
Yes. Zero-rated sales still count as part of your taxable turnover when working out whether you’ve crossed the £90,000 registration threshold, even though you don’t charge VAT on them.
WooCommerce automatically applies the standard 20% VAT rate to any product without a specific tax class assigned.
Yes. You can add additional country-specific rates in the Standard Rates table or manage them in bulk using CSV import and export.
Does WooCommerce submit VAT returns to HMRC directly?
No. WooCommerce calculates and records VAT, but you need Making Tax Digital-compatible software, such as Xero or A2X, to prepare and submit your VAT return to HMRC.
Zero-rated goods are taxable at 0% and still count toward your VAT registration threshold. VAT-exempt goods and services, such as insurance and financial services, aren’t taxable at all and don’t count toward the threshold.
The key takeaway is that getting VAT right in WooCommerce comes down to a fixed sequence: enable taxes, configure your settings accurately, set up the correct rate classes, and connect to Making Tax Digital-compatible software before you go live.
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 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.
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.
