UK VAT (20%) showing incorrectly at checkout for zero rate items

treetops — Mon, 05 Jan 2026 14:23:46 GMT

I posted about this in June 2024, now querying if there has been any progress on a fix, as we are still having to use a time consuming workaround.

In short (ish), Square Online does not recognise/handle zero rated items correctly at checkout where shipping tax is applied, even if item level tax rates are correctly set.

If we have a zero rated item in the basket, the shipping should be zero rated (as per UK tax law the entire amount charged, including the delivery fee, takes the VAT rate of the goods), however if an item level tax rate of 0% zero rated is set on an item, and shipping is selected, Square displays the 20% VAT delivery rate on the transaction, applying the 20% to both the shipping (incorrectly) AND the item (even though it is zero rated, so also incorrectly)

We sell zero rated children's clothing amongst full 20% rated items, so it's a big issue for us.

Our tax is included in item prices so the final total is actually still correct, but there are two consequences;

1. customer sees an amount of VAT that is incorrect (as the zero rated items should not have VAT accounted for at all, and certainly not have a 20% delivery VAT rate applied)

2. the tax report is incorrect, resulting in us potentially then having to send too much VAT to HMRC

A feature request was raised apparently, as the support team recognised this is a significant oversight, as the system is in effect not in compliance with UK tax legislation.

Our current workaround is awful but we have no choice, we have set the zero rated items to 'non-taxable', which at least removes them from any VAT calculations at checkout, and keeps them off the tax reports, but again this is not really compliant with UK tax rules as they are counted for taxable turnover, just at 0%, we have to run manual reports and adjust to ensure we account correctly.

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As Square support acknowledged this was indeed an issue, and it is breaching UK tax law, was hoping for a fast fix, but tested it this morning and it is still a problem, anyone any idea on when we can expect this to be fixed? Surely Square should be compliant with UK tax law!

Re: UK VAT (20%) showing incorrectly at checkout for zero rate items

treetops — Mon, 05 Jan 2026 14:24:35 GMT

This is a screenshot of the final checkout page, this is a zero rated item, item-level tax rates are set, Square should not be applying the 20% VAT rate to the shipping fee and the item as well.

thread UK VAT (20%) showing incorrectly at checkout for zero rate items in Payments Troubleshooting

UK VAT (20%) showing incorrectly at checkout for zero rate items

Re: UK VAT (20%) showing incorrectly at checkout for zero rate items