Online sellers face one of the more confusing corners of UK VAT, because the rules genuinely differ depending on where your stock is held, whether you sell through a marketplace or your own website, and whether you are based in the UK at all. Getting this wrong is common, and HMRC now receives seller data directly from platforms including Amazon, which makes it far easier for HMRC to spot registration gaps than it once was.
Disclaimer: This article is for general information only and reflects VAT rules confirmed at the time of writing. A consultation on extending marketplace VAT rules to UK domestic sellers closed in August 2026, and the outcome had not been confirmed at the time of writing. Always seek specific advice tailored to your own trading structure.
This article explains when online sellers need to register for VAT, how the marketplace deemed supplier rules actually work, the flat rate scheme trap that catches many online retailers by surprise, and a significant change currently under consultation that could affect UK based sellers on Amazon and similar platforms.
When You Need to Register for VAT
A UK established business must register for VAT once its taxable turnover exceeds £90,000 in any rolling 12 month period, not simply in a tax year. This is a genuinely rolling test, so it is worth checking your position regularly rather than only at the end of your accounting year, since a strong month can tip you over the threshold well before your year end arrives.
Non UK established sellers making taxable supplies in the UK generally do not benefit from this threshold at all. Many overseas sellers are required to register from their very first UK sale, regardless of value, if they are making supplies that fall outside the marketplace deemed supplier rules described below.
How Online Marketplace VAT Actually Works
Since January 2021, online marketplaces such as Amazon and eBay have been required to collect and account for UK VAT themselves in specific circumstances, effectively standing in the seller's shoes as what is known as the deemed supplier. This applies where an overseas seller sells goods valued at £135 or less to a UK customer, and separately where an overseas seller sells goods that are already located in the UK to a UK customer, regardless of the value involved. In both cases, the marketplace charges and accounts for the VAT, and the underlying seller is relieved of much of the associated obligation on those specific sales.
The important point many UK based sellers misunderstand is that this deemed supplier treatment generally does not apply to them. If you are a UK established business selling UK stock through Amazon or Shopify, you remain personally responsible for registering once you cross the £90,000 threshold, charging the correct VAT on your sales, and filing your own returns. Amazon does not register or account for VAT on your behalf simply because you sell through its marketplace, and assuming otherwise is one of the most common and costly mistakes we see among growing sellers.
Worked Example 1: A UK Seller Crossing the Threshold
Halden Home Goods Ltd, a UK established company selling through both Amazon and its own Shopify store, has taxable turnover of £81,000 in the twelve months to the end of July 2026. A strong August, driven by a seasonal promotion, brings that rolling twelve month figure to £93,500 by the end of August. Because the £90,000 threshold has been exceeded, Halden Home Goods Ltd must register for VAT, with the registration required to take effect no later than the first day of the second month after the threshold was crossed. From that date, VAT must be charged on qualifying sales through both Amazon and its own Shopify store, since neither platform will register or account for this on the company's behalf.
A Significant Change May Be Coming for UK Sellers
In June 2026, HMRC opened a consultation, running until 18 August 2026, on extending the marketplace deemed supplier rules to cover sales by UK sellers of goods physically located in the UK, something the current rules do not touch. The proposals under consideration include setting a minimum platform threshold at the existing £90,000 VAT registration level, setting it lower to close gaps used by sellers who spread sales across multiple platforms or accounts, or introducing a form of VAT rate relief for smaller UK sellers whose sales become subject to marketplace level VAT.
At the time of writing, the outcome of this consultation had not been confirmed. If implemented, particularly at a lower threshold, this could shift responsibility for charging and accounting for VAT away from many UK sellers and onto the marketplaces themselves, changing both compliance obligations and, potentially, net margins for smaller sellers currently trading below the registration threshold. This is genuinely a live area, and any UK seller relying heavily on marketplace sales should keep an eye on developments rather than assume the current rules will remain unchanged indefinitely.
Import VAT for Goods Sourced From Overseas
Many online sellers source stock from outside the UK, whether through direct dropshipping arrangements or by importing inventory in bulk to hold in the UK. The £135 rule that applies to marketplace sales also has a parallel effect on how import VAT is handled more generally. For consignments valued at £135 or less sold to UK consumers, VAT is generally collected as supply VAT at the point of sale rather than as import VAT at the border, with the seller or marketplace responsible for charging it. Above that £135 threshold, standard import VAT applies instead, generally payable at the point of import, though postponed VAT accounting allows many VAT registered importers to account for this on their VAT return rather than paying it upfront at the border.
Sellers who both import stock and sell through marketplaces need to think carefully about which of these rules applies at each stage, since import VAT on stock coming into the country and output VAT on sales to customers are two separate calculations that do not automatically net off against each other in the way many sellers initially assume.
Worked Example 2: Import VAT and Postponed Accounting
Brightlane Gifts Ltd imports a container of stock valued at £40,000 from an overseas supplier, holding it in a UK warehouse before selling individual items to UK customers through its own Shopify store. Because the consignment value comfortably exceeds £135, standard import VAT applies at the point of import, calculated on the customs value of the goods. Using postponed VAT accounting, Brightlane Gifts Ltd does not pay this import VAT in cash at the border. Instead, it accounts for the import VAT as both a charge and a corresponding reclaim on the same VAT return, meaning no cash actually changes hands provided the company can fully recover the VAT as input tax in the normal way. Once the goods are sold individually to UK customers, standard output VAT is charged on those sales as normal, entirely separately from the import VAT already accounted for.
The Flat Rate Scheme Trap for Online Retailers
The VAT Flat Rate Scheme is designed to simplify VAT accounting for smaller businesses by applying a single fixed percentage to turnover instead of tracking VAT on every purchase and sale individually. It is available to businesses expecting taxable turnover of no more than £150,000 in the next twelve months, and a business can generally remain on the scheme until total income reaches £230,000.
The trap for many online retailers is a rule known as the limited cost trader test. Where a business's spend on goods, including VAT, is either less than 2% of its VAT inclusive turnover, or more than 2% but under £1,000 a year, it is classified as a limited cost trader and must use a flat rate of 16.5%, regardless of what the normal sector specific rate would otherwise have been. Many online resellers with a genuinely low cost base, for example those selling digital products, handmade goods with modest material costs, or dropshipped items where most of the cost sits with a supplier rather than counting as the reseller's own goods purchase, fall into this category without realising it, and the 16.5% rate frequently leaves them worse off than simply using standard VAT accounting.
Worked Example 3: Why the Flat Rate Scheme Can Backfire
Carrow Crafts Ltd sells handmade home decor items through Etsy and its own Shopify store, with modest material costs relative to its selling prices. In a typical quarter, it invoices customers £30,000 including VAT for its sales. Its spend on qualifying goods for the same quarter comes to only £400, comfortably under the 2% and £1,000 limited cost trader thresholds, so the 16.5% flat rate applies. Under the Flat Rate Scheme, Carrow Crafts Ltd pays HMRC £30,000 multiplied by 16.5%, coming to £4,950, and keeps the difference between that and the VAT actually charged to customers.
Under standard VAT accounting instead, Carrow Crafts Ltd would charge output VAT of £5,000 on the same £30,000 of VAT inclusive sales, but would also be able to reclaim input VAT on its genuine business costs, including materials, packaging, and other overheads, something the Flat Rate Scheme does not separately allow for. Once those recoverable costs are taken into account, standard accounting frequently produces a lower net VAT bill than the 16.5% flat rate for a business with this kind of low cost, high margin profile, even though the flat rate scheme is marketed as the simpler option.
Frequently Asked Questions
Does Amazon charge and pay VAT on my behalf automatically?
Only in specific circumstances, mainly where you are an overseas seller making qualifying sales under £135, or selling UK held stock as an overseas seller. If you are a UK established business selling UK stock, Amazon does not register or account for VAT for you, and you remain fully responsible for your own registration and returns.
I sell on both Amazon and my own Shopify store. Do I need to track my turnover separately for each?
No, the £90,000 VAT registration threshold applies to your total UK taxable turnover across all sales channels combined, not to each platform individually. You need to monitor your combined rolling twelve month turnover across Amazon, Shopify, and any other channel together.
What happens if I do not register for VAT once I cross the threshold?
HMRC can register you retrospectively from the date you should have registered, and you may owe VAT on sales made after that date even though you did not charge your customers VAT at the time, along with possible penalties for late registration. Because HMRC now receives sales data directly from major marketplaces, this kind of gap is increasingly easy for HMRC to identify.
Should I join the Flat Rate Scheme as a new online seller?
It depends heavily on your specific cost structure. If your business genuinely spends a reasonable amount on qualifying goods relative to turnover, a lower sector specific flat rate can be worthwhile. If your costs are largely services, labour, or fall outside the narrow definition of qualifying goods, the 16.5% limited cost trader rate often makes standard VAT accounting the better option. This is worth modelling properly with your accountant using your actual figures before choosing.
Do I need to worry about VAT in other countries if I sell to customers in the EU?
Potentially, yes. Selling goods to consumers in the European Union generally brings separate EU VAT obligations into play, including the EU's One Stop Shop scheme for qualifying distance sales. This sits alongside, rather than instead of, your UK VAT obligations, and is a distinct area worth discussing separately if you sell into the EU.
Will the marketplace consultation definitely lead to a change?
Not necessarily, and the outcome was not confirmed at the time of writing. Government consultations do not always result in the exact proposals put forward, and the final approach, if one is adopted at all, may differ from any of the specific options in the original consultation. It is worth watching for a formal government response rather than assuming a particular outcome, but sellers relying heavily on marketplace sales should be aware this area is actively under review.
What CoreAcc Accountants Can Help You With
CoreAcc Accountants supports online sellers through VAT registration, ongoing compliance across multiple sales channels, and modelling whether the Flat Rate Scheme genuinely suits your specific cost structure rather than assuming it does because it is marketed as the simple option. We also keep clients updated as the marketplace VAT consultation develops, since any change here could directly affect how you price and account for sales going forward.
Get in Touch
If you are approaching the £90,000 threshold, unsure whether the Flat Rate Scheme is right for your business, or want to understand how the marketplace VAT consultation might affect you, contact CoreAcc Accountants for a review of your specific trading position.
CoreAcc Accountants is an ACCA accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was published in September 2026 and reflects VAT rules confirmed at the time of writing. It does not constitute professional or legal advice. Always seek specific advice tailored to your individual circumstances.
