You'll need a Zone where your VAT is applicable and you'll need to create a Tax Class and a Tax Rate.
#1 go to Locations->Zones Definitions and create a zone for VAT. Add countries where you will charge VAT. If it's worldwide, set to "All Countries" and "All zones".
#2 Now, for tax. You can use/edit the existing ones if you haven't deleted them. Check Locations->Tax Classes and see if you still have "Taxable Goods". If not create it and take note of the ID shown. Then go to Locations->Tax Rates and either edit the existing one or create a new one. Set it to "Taxable Goods", set the Zone where it applies (as defined in previous step) and set the tax rate. One thing I used to do with my UK clients was set it to 19.999% because it had proven to return much better calculations and there were less errors due to rounding.
Once it's all done, you'll need to run some SQL queries to update pricing. Go to Tools->Install SQL Patches and run the following:
Code:
UPDATE products SET products_tax_class_id = 1;
This query will update ALL products and make it Taxable Goods. Keep in mind that you need to use the ID that you took note of in step 2.
Next, run this:
Code:
UPDATE products SET products_price = products_price * 5 / 6;
This will convert your current prices to Net prices and once tax is added, the price will remain the same. For example, if your current price is £100 and you want to keep it £100 with VAT included, it's gonna be 100*5/6 = £83.33 + 20% VAT = £100
For anyone else reading this: your values might be different in the formula - this is based on 20% tax.
Don't forget to change your store's settings in Configuration->My Store->Display Prices with Tax->true and optionally the same for admin.
Oh, and one VERY IMPORTANT THING - when you get to Tools->Install SQL Patches, you'll see the text in red. Make sure you read it and do what it says.
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