Tax setup in WooCommerce is one of the most consequential configurations on your store – wrong tax settings mean under-collecting or over-collecting tax, both of which create accounting and legal problems. This guide covers the complete setup, common configurations for UK VAT, US sales tax, and EU VAT, and when to use an automated tax service instead of manual rates.
Step 1: Enable Taxes
Go to WooCommerce -> Settings -> General. Check “Enable taxes”. Save. A new Tax tab appears in WooCommerce settings. Without enabling taxes here, no tax configuration options are available.
Step 2: Configure Tax Options
Go to WooCommerce -> Settings -> Tax. Configure:
- Prices entered with tax – do your product prices include tax (Yes for UK/EU B2C) or exclude tax (common for B2B and US stores)? This setting fundamentally changes how WooCommerce displays and calculates prices.
- Calculate tax based on – Customer shipping address (correct for destination-based tax like US sales tax), Customer billing address, or Shop base address (simpler for single-jurisdiction stores like UK VAT)
- Shipping tax class – usually matches the tax class of cart items
- Rounding – “Round tax at subtotal level” is correct for most stores
- Display prices in the shop – whether to show prices with or without tax
- Display prices during cart and checkout – typically “Including tax” for B2C, “Excluding tax” for B2B
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Step 3: Add Tax Rates
Go to WooCommerce -> Settings -> Tax -> Standard Rates. Click Insert Row for each rate you need.
UK VAT setup (20% standard rate):
Country: GB
State: (leave blank)
Postcode: (leave blank)
City: (leave blank)
Rate %: 20
Tax Name: VAT
Priority: 1
Compound: No
Shipping: YesEU VAT setup: Add a separate row for each EU member state with its current VAT rate. EU VAT rates vary by country (Germany 19%, France 20%, Hungary 27%, etc.). After Brexit, UK stores selling to EU consumers may need to register for VAT in EU countries or use the EU’s One Stop Shop (OSS) scheme – consult a tax accountant for your specific situation.
US Sales Tax: US sales tax varies by state, county, and city – there are over 10,000 tax jurisdictions. Manual entry is impractical. Use TaxJar, Avalara, or WooCommerce’s built-in Automattic taxes (via Jetpack) to handle US sales tax automatically. These services update rates automatically and handle nexus-based rules.
Step 4: Tax Classes for Reduced Rate Items
Some products have a reduced tax rate. In the UK, children’s clothing, books, and food are zero-rated. Add a “Reduced Rate” and “Zero Rate” tax class in WooCommerce -> Settings -> Tax. Go to the Reduced Rate and Zero Rate tabs and enter the appropriate rates. Then assign products to the correct tax class on each product’s General tab.
Step 5: Test Your Tax Setup
Go through your checkout as a test customer with different shipping addresses. Verify the correct tax rate is applied and displayed. Check: does the tax amount appear on the order confirmation email? Does the tax appear separately in the order summary? Does the total match expectations? Place test orders using WooCommerce’s Cheque payment method (no real money involved) to verify the full order flow including tax recording.