How to Set Up and Manage VAT on Shipping, Discounts, and Gift Cards in Shopify

Key takeaways

Getting VAT right on shipping, discounts, and gift cards in Shopify is important for smooth tax compliance and clear accounting. With proper setup and regular checks, Shopify handles most VAT rules automatically, but regular reviews and test orders help you avoid common mistakes.

Key points:

• VAT on shipping matches the VAT rate of the product being sold and is applied automatically if your region settings are correct.
• VAT for discounts is calculated only on the reduced (final) price, so you never pay VAT on the full amount.
• Gift cards are not taxed when sold, but VAT applies when they are redeemed for goods or services.
• Use test checkouts and review Shopify’s tax reports regularly to confirm your store’s tax settings are correct.
• Advanced setups, such as tax overrides or EU OSS registration, may be needed if you sell in multiple regions.

How to Set Up and Manage VAT on Shipping, Discounts, and Gift Cards in Shopify

Shopify VAT compliance can feel like another language, especially if you sell to multiple countries. The rules for VAT on shipping, discounts, and gift cards are packed with details. But here’s the good news upfront: setting it up right is often easier than you’d think.

At 1stopVAT, we help Shopify merchants, accountants, and business owners handle VAT on every part of an order, from shipping fees to gift cards. Which means fewer headaches. And more time for you to grow your store the way you want.

Quick Summary: VAT on Shipping, Discounts, and Gift Cards in Shopify

VAT on Shipping Shopify follows the VAT rules for the products you sell. If you charge VAT on the items, you also charge VAT on shipping, at the same rate.

VAT on Discounts Shopify means VAT is only calculated after you subtract the discount, making the customer’s savings count for both you and the tax authorities.

VAT on Gift Cards Shopify is not taxed when sold, but tax applies when they are used to buy goods or services.

Shopify automates much of this, but double-checking settings prevents surprises.

Now, let’s get into each part.

Setting Up VAT in Shopify: The Basics

Shopify lets you collect VAT for any region where you’re registered. Here’s the direct route:

• From your Shopify admin, go to Settings > Taxes and Duties.
• In the Regional settings, pick your sales region (e.g., European Union, United Kingdom).
• Click Collect VAT, choose your country, and add your VAT number.
• Shopify applies standard rates for each region, but you must keep your VAT registration up to date. If your sales reach the UK VAT threshold (currently £90,000), you must register and charge VAT.
• Always review local rules for updates, especially if you use the Shopify Shop App to reach more customers. Rules can change quickly.

For step-by-step visuals, check the Shopify VAT setup guide. For a deeper look at Shopify tax compliance strategies, see our Shopify Sales Tax Compliance 2025 guide.

VAT on Shipping Shopify: When, Where, and How

If you sell to customers in the UK or EU, VAT on shipping is mandatory when the sale is taxable. The rate for VAT on shipping Shopify matches the products sold.

How it works:

• If you sell VAT-rated products, shipping is also VAT-rated (at the same rate).
• There’s no special box to tick, but you should run test checkouts using different addresses to confirm VAT applies where it should.
• Regional settings matter. For example, if your customer is in Germany, Shopify applies the German VAT rate on both goods and shipping.

Shipping VAT rarely requires manual configuration. Just set up VAT for your region, and Shopify does the rest. If your region has special requirements (some places set zero VAT for shipping), check Shopify’s Charge VAT on shipping rates option.

Need proof this works? We regularly create test orders at 1stopVAT, switching the destination to capture regional differences. A tiny detail—like the wrong postal code—can change the VAT rate you collect.

VAT on Discounts Shopify: How Discounts Affect VAT

Discounts are great for customers. For accounting, though, they mean you only charge VAT on the amount after the discount.

In Shopify, VAT on Discounts works like this:

• VAT is automatically calculated on the final, discounted price.
• You do not pay VAT on the full original price. This is called calculating “net of discount.”
• No extra setup is needed—Shopify adjusts VAT reports automatically.

Want to check it? Run an order with and without a discount and compare the VAT line. We’ve found that merchants sometimes forget this, leading to confusion in reports when export numbers don’t match expectations.

VAT on Gift Cards Shopify: Purchase vs. Redemption

Gift cards bring their own twist. Most regions, including the UK and EU, do not require VAT to be charged when you sell a gift card. Why? Because a gift card isn’t goods or a service. It’s like giving credit, which only “turns into” goods later.

Here’s how you handle VAT on Gift Cards Shopify:

• When you sell a gift card, it’s not taxable. Treat it as VAT-exempt—go to the gift card product, and uncheck “Charge taxes on this product.”
• VAT is due when the gift card is redeemed for actual products or services. At that point, Shopify’s tax engine calculates VAT based on the products in the cart, the region, and any discounts applied (e.g., a promotion).
• If your country has a special rule (for example, for “multi-purpose” gift cards or vouchers), set up a tax override in Taxes and Duties > Tax overrides.

We once worked with a merchant selling digital gift cards in several countries. Their accountant caught the mistake—VAT had been charged at sale, not redemption, so we helped reclassify the gift cards as tax-exempt. This fixed the VAT overpayment.

Taxability Table at a Glance

Key Tips and Common Traps

• Always run several test checkouts covering different regions to ensure correct VAT on shipping, discounts, and gift cards.
• Compare your data with what’s expected in local laws. If you use the Shopify Shop App, make sure your tax settings are active on all sales channels.
• Regularly review your Shopify tax report export to spot errors early, especially at VAT quarter ends.
• If you sell into multiple countries, keep an eye on VAT thresholds and consider Shopify EU VAT OSS for simplified One Stop Shop filings.

We’ve helped clients catch issues like missed gift card exemptions, discounted items not calculating VAT net, or misapplied Shopify tax region settings—saving them both time and fines.

Advanced VAT Configuration for Growing Stores

Selling into the EU, UK, or globally? Shopify’s default VAT handling works for most, but sometimes you need custom tax overrides.

• Use tax overrides when a particular product, country, or discount needs different VAT rules.
• For high-volume cross-border sales, set up an OSS (One-Stop Shop) within your Shopify VAT setup. This makes EU-wide filing easier.
• UK VAT Shopify has its own rules—carefully check thresholds and be ready to reconfigure if you pass them.

If you need a hand with these more complex setups, 1stopVAT helps merchants assess current settings, configure overrides, and stay compliant.

How to Stay Compliant with 1stopVAT

Getting VAT right with Shopify doesn’t have to be a solo job. At 1stopVAT, we walk merchants through:

• The full VAT setup for the Shopify admin, including all regions you sell to.
• Ongoing support, including changes in local VAT rates, distance-selling thresholds, and OSS registration.
• Hands-on review of your Shopify Shop App configuration, especially for gift cards and discounts, to prevent reporting mismatches.
• Personalized guidance—our team has firsthand experience solving VAT on shipping Shopify or unusual tax cases, and we’re ready to help.

If you’re ever unsure or if your business grows beyond a single country, ask for expert help before compliance lapses turn into real costs.

Frequently Asked Questions