The number that lands in your bank from Shopify is not your turnover. It is your sales minus Shopify's fees, minus refunds, minus chargebacks, sometimes split across two different payout schedules. If you book that figure as your sales, your VAT return is wrong before you have even started.
This is the single most common VAT error we see on Shopify accounts. It understates your turnover, it understates your output VAT, and it quietly nudges you closer to (or past) the registration threshold without you noticing.
In short: your Shopify payout is your gross sales minus fees, refunds and chargebacks, so it is not your VAT turnover. VAT is due on the full consideration the customer pays (per HMRC VAT Notice 700), so you record gross sales for Box 1 and Box 6 and treat Shopify's fees as a separate cost with their own VAT treatment: card processing fees normally carry no VAT, and Shopify's plan fees go through the reverse charge. Use a clearing account to prove the gross detail reconciles to the net cash that reaches your bank.
This guide shows you why the payout and your turnover are different numbers, and gives you a clean clearing-account method that gets Box 1 and Box 6 of your VAT return right every quarter. It is written for UK Shopify sellers who are VAT-registered or close to it. If that is you, our work with Shopify sellers is built around exactly this problem. For the bigger picture beyond VAT, start with our Shopify accounting guide for UK sellers.
Why is my Shopify payout not my VAT turnover?
Your VAT turnover is the full value your customer pays you for the goods. Your payout is what is left after Shopify takes its cut. VAT is due on the first number, not the second.
HMRC is clear that VAT is charged on the consideration, which is the full amount you are given in exchange for the supply. The VAT guide (Notice 700) puts it plainly: the consideration "includes any payment that you are given to cover your costs in making the supply, unless you incur the costs as an agent". Shopify's transaction fee is one of your costs of making the sale. You do not get to net it off before working out the VAT.
So when a customer pays £60 for an order, your sale is £60 including VAT, even though the cash that reaches your account might be £58.20 after fees. The £60 is what goes through your VAT return. The £1.80 of fees is a separate, deductible business cost, and our guide to whether Shopify fees and app subscriptions are tax deductible covers how that cost is relieved.
Table of contents
- Why is my Shopify payout not my VAT turnover?
- What does a Shopify payout actually contain?
- What is the clearing-account method?
- Worked example: payout vs turnover on a VAT return
- Which VAT return boxes does this affect?
- Is Shopify a "marketplace" that handles VAT for me?
- How do Shopify fees and overseas charges affect input VAT?
- What about sales abroad, and the £135 rule?
- Does the Flat Rate Scheme change the turnover figure?
- Will HMRC see my Shopify income anyway?
- FAQs
What does a Shopify payout actually contain?
A single payout is a net settlement. By the time it hits your bank, Shopify has already adjusted it for several things that each need separate treatment in your books.
A typical payout nets together:
- Gross sales the customers actually paid (this is your VAT-inclusive turnover).
- Shopify Payments processing fees taken on each order.
- Refunds issued to customers in the period.
- Chargebacks and disputes deducted when they happen.
- Timing differences, because an order placed on the last day of the quarter often pays out in the next one.
Every one of those lines has a different VAT consequence. Refunds reduce your output VAT. Fees have their own VAT treatment. Timing differences move income between return periods. Gift cards are a timing case all of their own, since the income is deferred until they're redeemed, as our guide to Shopify gift cards and deferred revenue in UK accounts explains. Collapse them all into one "payout received" figure and you lose the ability to get any of them right.
This is why you reconcile from the Shopify reports, not from your bank statement.
What is the clearing-account method?
A clearing account (sometimes called a control account) is a holding account in your bookkeeping that sits between your sales and your bank. You post the gross detail to it, then clear it down to match the actual cash received. Nothing should be left stranded in it once a payout is reconciled.
Here is the method in five steps.
- Record gross sales to your sales accounts. Take the gross value of orders from Shopify's finances reports, split by VAT rate, and post it as sales with output VAT. This is your real turnover.
- Post Shopify fees as a purchase. The processing and subscription fees are a business cost, not a reduction in sales. Book them to a "platform fees" expense account with their own VAT treatment.
- Post refunds and chargebacks against sales. These reduce both your sales and the output VAT you owe, in the period they occur.
- Send all of those to the clearing account, not the bank. Each of the steps above debits or credits the Shopify clearing account.
- Clear it down with the payout. When the payout lands, match it against the clearing account. The clearing account should fall to nil (give or take orders still in transit at the period end). If it does not balance, something is misposted, and you have found the error before HMRC does.
The discipline is simple: sales go in at gross, costs go in separately, and the bank only ever sees the net payout. The clearing account is where you prove the two tie up.
Worked example: payout vs turnover on a VAT return
Illustrative example. Priya runs a homeware store on Shopify, VAT-registered on the standard scheme, selling standard-rated goods at 20 per cent VAT for 2026/27. In one quarter her Shopify finances report shows:
- Gross sales (what customers paid): £12,000
- Shopify Payments processing fees for the quarter: £348, with no VAT on them
- No refunds or chargebacks this quarter
Her payouts to the bank total £11,652 (£12,000 of sales less £348 of fees).
The wrong way (payout as turnover):
Priya books the £11,652 she received as her sales. Working back from a VAT-inclusive figure, she declares net turnover of £9,710 and output VAT of £1,942. Her declared sales are understated by £290, and her output VAT by £58.
The right way (clearing-account method):
| Item | Net | VAT | Gross |
|---|---|---|---|
| Gross sales (output) | £10,000 | £2,000 | £12,000 |
| Shopify Payments fees (no VAT) | £348 | £0 | £348 |
| VAT payable to HMRC | £2,000 |
Her real turnover is £10,000 net (£12,000 gross divided by 1.2). Output VAT is £2,000. Card processing is normally an exempt financial service (VAT Notice 701/49, paragraph 4.8), so there is no VAT on the fees to reclaim. Net VAT due is £2,000.
Notice the trap. The payout method underpays VAT by £58 a quarter, one sixth of the fees, and her declared turnover is £290 too low. Over a year of fees both gaps grow. Get that wrong across many quarters and your turnover figure, the one that drives the £90,000 registration threshold for 2026/27 (gov.uk: Register for VAT), is materially understated, and the VAT underpaid is an error to correct. That is the part that bites.
Which VAT return boxes does this affect?
Two boxes carry the damage if you use the payout figure.
Box 6 is "the total value of all your business sales and other specific outputs but leave out any VAT", per HMRC's VAT Notice 700/12. That is your net turnover. Using the payout understates it.
Box 1 is "the VAT due on all goods and services you supplied in the period", your output VAT. Netting fees off your sales understates this too whenever your maths starts from the cash received.
Refunds reduce both Box 1 and Box 6 in the period they happen. Shopify's fees stay out of your sales: card processing fees go in Box 7 with no VAT, and Shopify's plan fees go through the reverse charge, with the VAT in Box 1 and Box 4 and the value in Box 6 and Box 7 (VAT Notice 741A, paragraph 5.2). The clearing-account method keeps them separate.
In short: gross sales drive Box 1 and Box 6, fees go in Box 7 (plus the reverse charge entries for Shopify's plan fees), and the payout drives nothing on the return at all. The payout only ever reconciles your bank.
Is Shopify a "marketplace" that handles VAT for me?
For your own store, no. Shopify is your shop platform and Shopify Payments is your payment gateway. It is not acting as the deemed supplier for your sales, so you account for the VAT on your own sales yourself.
This matters because there is a separate set of rules where an online marketplace does become liable for the VAT. HMRC's guidance on charging VAT when using an online marketplace explains that the marketplace is liable to account for the VAT where the seller is not established in the UK and the goods are in the UK at the point of sale, and on goods in consignments of £135 or less located outside the UK at the point of sale.
If you are a UK-established seller selling your own goods through your own Shopify store, those deemed-supplier rules are not doing the work for you. You charge and account for the VAT. Do not assume a platform has handled it.
How do Shopify fees and overseas charges affect input VAT?
Shopify bills UK merchants from Shopify International Limited, a company in Ireland (Shopify Terms of Service). So for a VAT-registered seller who has given Shopify a VAT number, its plan and transaction fees come without VAT and go through the reverse charge. Shopify Payments processing fees are different: card processing is normally an exempt financial service, so there is no VAT on them to reclaim (VAT Notice 701/49).
Here is how the reverse charge works. It applies where you buy services from a supplier that belongs outside the UK. HMRC's Notice 741A confirms the reverse charge applies where you are UK VAT-registered, belong in the UK, and receive business-to-business services supplied in the UK by a supplier who belongs overseas. In that case you account for the VAT yourself, putting it in Box 1 as if you had charged it, and reclaiming the same amount in Box 4 if it relates to your taxable sales. HMRC notes that "the amount of VAT payable on any service from another country is the same as the amount of VAT that would be paid if the service were supplied to you by a UK supplier for the same net amount".
The practical point: the VAT treatment of each fee changes which boxes the cost touches, but it never changes the fact that the fee is a separate cost from your sales. It belongs in the fees account, not netted off turnover. Larger one-off purchases for the business follow different rules again, set out in our guide to the capital tax treatment of a UK Shopify business.
What about sales abroad, and the £135 rule?
If you ship to customers in the EU, the VAT on those sales may belong in another country rather than on your UK return, but the principle holds: the sale value is the gross consideration, not the payout.
For low-value goods you import in consignments of £135 or less and sell to consumers in the EU or Northern Ireland, UK businesses can register for the VAT Import One Stop Shop (IOSS) scheme. Under IOSS you charge the customer the VAT rate that applies in the destination, keep records of those imports, and submit a monthly IOSS VAT return. That is a different return from your domestic UK VAT return, and it has its own deadlines.
Wherever the VAT lands, you still need your gross sales split correctly by destination and VAT treatment. The clearing-account method gives you that split, because you are starting from gross orders rather than a blended payout. If you sell in more than one currency, our guide to Shopify multi-currency and FX accounting covers how to convert those orders consistently.
Does the Flat Rate Scheme change the turnover figure?
If you are on the Flat Rate Scheme, you apply a single percentage to your flat rate turnover, and HMRC defines that as your VAT-inclusive turnover. So you still need the gross sales figure, not the payout.
The fees do not come off first. HMRC's Flat Rate Scheme guidance also flags the limited cost business rate of 16.5%, which can apply if your spending on goods is very low, and there is a 1% discount in your first year of VAT registration. Many online sellers spend little on physical goods relative to turnover, so the limited cost rate catches more ecommerce businesses than they expect. Whether the scheme saves you money is a calculation worth doing properly rather than assuming.
Either way, starting from the payout instead of gross sales would understate your flat rate turnover and underpay the scheme. Same error, different scheme.
Will HMRC see my Shopify income anyway?
Not through Shopify. Shopify is a store builder rather than a marketplace, so it doesn't send HMRC a seller report under the digital platform reporting rules, as our guide to whether Shopify reports to HMRC explains. Marketplaces such as eBay, Etsy and TikTok Shop do, and the figure they send proves this whole article's point.
HMRC's own guidance to sellers says the platform report shows "the total amount that you have earned on the platform for the calendar year, less any fees, commission or taxes deducted by the platform". In other words, the platform-style figure is itself a net-of-fees number. HMRC then tells sellers that these reports "do not replace your normal business records or tax calculations".
That is exactly why you keep your own gross records. The net figure floating around is not your turnover, and HMRC explicitly says it is not the end of the story. Your books, built from gross sales, are.
For Shopify-specific bookkeeping that ties payouts to gross sales cleanly, this is the heart of how we support Shopify sellers. If you want a second pair of eyes on your VAT returns, book a call with a Zmartly accountant and we will sanity-check your last quarter.
FAQs
Is my Shopify payout the same as my turnover for VAT?
No. The payout is your gross sales minus Shopify fees, refunds and chargebacks. Your VAT turnover is the full gross value your customers paid, before any fees are deducted. VAT is due on the full consideration, so you must use the gross figure, not the payout.
Where do I find my gross sales in Shopify?
Use Shopify's finances and payouts reports rather than your bank statement. The reports break out gross sales, fees, refunds and chargebacks separately, which is what you need to post each one correctly. The bank only shows the net payout.
Can I deduct Shopify fees before working out my VAT?
No. Shopify fees are a separate business cost. You charge VAT on the full sale value, and you account for the VAT on the fees separately: the reverse charge for Shopify's plan fees, and nothing for card processing fees, which are normally exempt. Netting the fees off your sales understates both your turnover and your output VAT.
Does Shopify collect and pay my VAT for me?
For your own Shopify store you account for the VAT yourself. The deemed-supplier rules that make an online marketplace liable for VAT apply mainly to sellers not established in the UK and to certain low-value imported goods, not to a UK-established seller running their own store.
How does the payout affect my VAT return boxes?
It should not affect any box directly. Gross sales drive Box 1 (output VAT) and Box 6 (net sales). Fees go in Box 7, with the reverse charge entries in Box 1 and Box 4 for Shopify's plan fees. The payout is only used to reconcile your bank account through a clearing account, not to fill in the return.
What if an order pays out in the next VAT quarter?
Record the sale in the period the supply takes place, following the normal tax point rules, not when the cash arrives. The clearing-account method handles this by leaving in-transit orders sitting in the clearing account at the period end, then clearing them when the payout lands.
