Written by Giles Bennett
If we start talking about tax, chances are you're going to stop reading. But if we tell you that with a few simple steps you can quickly and easily increase your overseas turnover by 20%, hopefully you'll stick around long enough to find out. Because that's what you can achieve with the new cross-border trade feature in the most recent version of Magento.
Up until the most recent (1.9) version of Magento, tax was somewhat limited. A product was either taxable or not - if it was taxable, then whether tax was charged or not depended on your tax settings. In practice, your average UK based store would charge VAT on vatable items where they were dispatched to addresses in the UK and the EU (so a customer would be charged £50.00 for an item, comprised of £41.66 + £8.34 VAT). Orders going to locations outside the EU would not attract VAT, the product would be sold exclusive of VAT, and the customer would be charged £41.66.
A number of clients, over the years, wanted to have a two tier pricing structure so that clients outside the EU would still be charged the higher price. The solution was, in all honesty, bit of a fudge - rather than calculating VAT based on the shipping destination, it would be charged on the shipping origin (as this was in the UK, this meant that all sales would attract VAT), but the relevant lines in the totals at the checkout, and on the order confirmation emails, would be hidden, so that the overseas customers wouldn't see that they were paying full whack. The downside of this is that if clients were relying on Magento's reporting functionality, they would have to remember to add back the tax at the end of the month.
That has now changed with the introduction of the cross-border trade feature. Enabling this functionality in Magento's configuration means that all customers will be charged the same price, and that price will be deemed to be inclusive of whatever tax is payable under your tax rules. So customers in the UK and the US will both be charged £50.00, with the UK customer's £50.00 being deemed to include £8.34 of VAT, but the US customer's £50.00 being all yours. No fudging, no hiding anything - at a stroke, your turnover on sales outside the EU increase by 20%.
Admittedly, the downside is that all customers are price sensitive, so it may well. Savvy overseas customers may also twig that they shouldn't be paying UK VAT, but since there'll be no mention of VAT anywhere, it's less likely.
If you'd like us to advise you on how best to implement this feature, or if you think that your tax rules need a quick check over, then feel free to get in touch.