Magento – Creating a VAT Tax Class

It’s something that you’d expect to be reasonably simple, but there are a few steps in the process of setting up Tax Classes for products in your Magento store. There are 3 major parts to it:

1. Tax Class

Go to Sales > Tax > Product Tax Classes

Click on ‘Add New’ then create a name for the class, as this is a UK store I’m going to call this one VAT. Then Click ‘Save’.

2. Tax Zone & Rate

Go to Sales > Tax > Manage Tax Zones & Rates

Create a new Tax Identifier, which I’m going to call VAT again. Country is set to United Kingdom, Stae & Zip/Postcode simply have a * in them. Then you need to set the rate of tax, which I’m going to set as 17.5% – the new VAT rate in the UK from January 2010. Now click on ‘SaveRate’.

3. Tax Rule

Go to Sales > Tax > Manage Tax Rules

Finally I’m going to finalise the VAT class by defining a tax rule. You can name the rule whatever you like, I’m going call it VAT 17.5%. Select a Customer Tax Class, VAT from the Product Tax Class and VAT from the Tax Rate field. This rule defines that the Tax Rate you select is applied to the Customers in the selected Customer Tax Class and the Products in the selected Product Tax Class. Assuming that you just want to apply it to normal customers in the store, you can just select the retail customer option.

Now when you create a new product, just choose ‘VAT’ as the applicable tax rate while defining pricing options and it will add on 17.5% during the checkout.