Ever wondered if you need to pay VAT when shopping on online marketplaces like Amazon or eBay?
No matter if you’re a seller or buyer, with the rise of online shopping, understanding VAT rules for online marketplaces has become essential for everyone. These rules, which cover both domestic and international transactions can seem complicated at first glance.
But don’t worry, this guide aims to simplify it all for you, ensuring you know what VAT is due, when it applies, and how it impacts your purchases and sales.
Let’s get into it!
What Is VAT on Online Marketplaces?
Before we break down the rules, let’s quickly clarify what VAT is and why it’s important for online marketplaces UK.
Value Added Tax (VAT) is a tax added to the sale of goods and services. In the UK, VAT is charged on most goods and services that are bought and sold. If you’re selling goods or services and your business turnover exceeds the VAT threshold, you’re required to charge VAT on your sales. Similarly, if you’re a buyer, VAT is added to your purchase price unless you’re buying exempt goods.
Online marketplaces have become major players in e-commerce and with that VAT rules have had to adapt. The rules differ slightly for businesses selling through marketplaces like Amazon or eBay compared to those selling directly from their own websites.
Online Marketplace VAT Rules in the UK
The UK has implemented specific VAT rules for online marketplaces (OMPs) to ensure proper VAT collection on goods sold through these platforms. These rules affect both businesses selling on OMPs and buyers making purchases.
Who is Responsible for VAT on Online Marketplaces UK?
The responsibility for VAT collection has shifted significantly, with OMPs now playing a crucial role. Since January 1, 2021, online marketplaces are liable for VAT on:
- Goods located in the UK at the point of sale, sold by overseas sellers to UK customers. This applies regardless of the value of the goods.
- Goods sold from outside the UK to UK customers, valued at £135 or less. In these cases, the OMP is responsible for charging and accounting for the UK VAT at the point of sale.
This means that if you’re a seller based outside the UK and selling goods located in the UK, or if you’re selling goods valued at £135 or less from outside the UK, the online marketplace will handle the VAT collection and ensure the correct amount of tax is paid. This simplifies the process for consumers, as the VAT is typically included in the price they see.
The £135 limit is not of individual items that are in consignment but it applies to the value of a total consignment that is imported.
Special Rules For Businesses
This gets a little more complex if you’re a VAT-registered business buying from an overseas seller on a marketplace.
- For goods under £135: If you provide your UK VAT number, the marketplace won’t charge you VAT. Instead, you’ll account for the VAT yourself using a “reverse charge” procedure. You effectively charge yourself the VAT and can then reclaim it on the same VAT return.
- For goods over £135: Just like with non-business customers, normal import VAT rules apply. As a VAT-registered business, you can use a system called “postponed VAT accounting,” which lets you declare and recover the import VAT on the same VAT return, improving your cash flow.
Why Are These Rules In Place?
These rules were put in place in January 2021 to ensure that overseas sellers selling to UK customers pay the correct VAT. By making the online marketplaces responsible in many cases, it makes the process smoother for both buyers and HMRC, the UK tax authority.
Summary:
For most online shopping, the marketplace handles the VAT. But for larger orders from abroad, be prepared for a customs charge when your parcel lands in the UK.
What VAT Requirements Apply to Online Marketplaces (OMPs)?
Recent guidance from HMRC has reinforced and clarified the VAT requirements for OMPs in the UK, particularly concerning sales by overseas businesses.
1. VAT registration and accounting: OMPs must register for UK VAT and account for VAT on certain sales.
- They are liable for VAT on goods of any value located in the UK at the point of sale by an overseas business.
- They are also liable for VAT on consignments valued at £135 or less sold from outside the UK to a UK customer.
2. Checking seller establishment: OMPs must take reasonable steps to determine if a seller is established outside the UK. This is crucial for correctly applying VAT liability.
- HMRC expects businesses to tailor their checks based on factors like business size and risk systems.
- OMPs must keep evidence of these checks, which HMRC may
- review.
3. VAT number verification: OMPs are required to request and display sellers’ UK VAT registration numbers (VRNs). They must also verify these numbers using HMRC’s online service. If a VRN is found to be incorrect, the OMP must take steps to remove it within 10 days.
4. Determining consignment value: The £135 threshold applies to the intrinsic value of the entire consignment, not individual items. OMPs need accurate information to determine the correct VAT treatment.
5. Record keeping: OMPs must keep electronic records of sales, including VAT invoices, for 6 years.
6. VAT invoices: OMPs must issue full VAT invoices (paper or digital) for sales where they are liable for VAT.
7. Penalties and liability: OMPs can be held liable for under-declared VAT if they fail to show they took reasonable steps to ensure correct VAT was charged.
- HMRC can hold OMPs jointly and severally liable for unpaid VAT by overseas sellers, especially if the OMP knew or should have known the seller should have been registered for UK VAT and didn’t act within 60 days of becoming aware.
- HMRC can issue a joint and several liability notice, typically requiring the OMP to stop the seller from trading within 30 days.
Business-to-Business (B2B) Sales:
- For consignments £135 or less: If the UK VAT-registered business customer provides their VRN, the OMP does not charge VAT. The invoice should state “reverse charge,” and the customer accounts for the VAT.
- For consignments over £135: Normal import VAT and customs rules apply, with the buyer responsible for accounting for VAT, potentially using postponed VAT accounting.
What Happens If You Don’t Meet VAT Requirements?
UK Sellers Who Do Not Meet VAT Requirements
HMRC may hit you with a penalty. They can also contact the online marketplaces you use to sell and let them know that you’re not following the VAT rules. The marketplace might decide to remove your listings.
Overseas Sellers Who Do Not Meet VAT Requirements
For overseas sellers, the consequences are similar. In addition to penalties, HMRC might require you to:
- Appoint a VAT representative based in the UK
- Provide a suitable security deposit
If you still don’t comply, HMRC can reach out to the online platforms you’re selling through. They might even remove your business from their marketplace.
UK Online marketplaces also have the right to remove you if:
- They know you need to be VAT registered, but you haven’t done it
- You haven’t provided a valid VAT registration number for your business.
Do You Pay VAT On Online Purchases?
Yes, generally you do pay VAT on online purchases but whether it’s charged at the time of purchase or when the goods arrive can depend on a few things.
Here’s the list of it:
1. If the seller is based in the UK:
- Yes, you’ll almost always pay UK VAT. This is included in the price you see and pay at checkout. The seller (or the online marketplace if they’re responsible, as we just discussed) will collect and remit it.
2. If the seller is based outside the UK and the goods are being shipped into the UK:
- For goods valued at £135 or less: The online marketplace is usually responsible for charging and collecting the UK VAT at the time of your purchase. So, the price you pay includes the VAT, and there shouldn’t be any extra charges when it’s delivered.
- For goods valued over £135: The online marketplace generally doesn’t charge you the VAT at the time of purchase. Instead, when the goods arrive in the UK, you (the importer) will be responsible for paying the import VAT to the courier or postal service before they deliver your package. You might also have to pay customs duty on top of that, depending on the item and its origin, plus a handling fee from the delivery company.
Summary:
While the answer is mostly yes, you pay VAT, the key difference is when and to whom you pay it. Sometimes at checkout, sometimes when the parcel arrives.
What Happens When Goods Are Outside the UK at the Point of Sale?
When goods are outside the UK at the point of sale, the VAT treatment depends on the value of the consignment:
- Consignments valued at £135 or less: If you sell goods from outside the UK to a UK customer via an OMP, the OMP is responsible for charging and accounting for the UK VAT at the point of sale. This simplifies the process for the customer, as VAT is included in the price paid.
- Consignments valued over £135: For goods sold from outside the UK to a UK customer, where the consignment value is over £135, standard import VAT and customs rules apply. The OMP is not responsible for collecting the VAT at the point of sale. Instead, the importer (usually the customer) will be responsible for paying the import VAT (and any applicable customs duties) when the goods arrive in the UK.
What About Goods That Are in the UK at the Point of Sale?
When goods are already located in the UK at the point of sale:
- Sales by UK sellers: Normal UK VAT rules apply. If the seller is VAT-registered, they charge and account for the VAT to the customer.
- Sales by overseas sellers: If an overseas business sells goods that are already located in the UK through an OMP to a UK customer, the OMP is liable for the VAT on that sale, regardless of the value of the goods.
What Are VAT Invoices and When Do I Need Them?
A VAT invoice is a document that details the supply of goods or services, including the amount of VAT charged. It is required for VAT-registered businesses to reclaim VAT on their purchases.
OMPs must issue VAT invoices to customers for sales where the OMP is liable for the VAT (e.g., low-value imports or goods already in the UK sold by overseas sellers). Sellers may also need to issue VAT invoices depending on their own VAT registration status and the nature of the sale.
What If Goods Are Returned to You?
When goods are returned, the VAT situation depends on the value of the goods and who was originally responsible for the VAT. For goods valued at £135 or less sold via an online marketplace (OMP), the OMP is responsible for the VAT adjustment on its return when goods are refunded.
For goods valued over £135 sold from outside the UK, the customer (importer) must apply to HMRC for a repayment of import VAT, and overseas sellers can use Returned Goods Relief to avoid paying import VAT again if they receive the goods back and are UK VAT-registered. If a UK VAT-registered business receives returned goods within the UK after a cancelled sale, it must adjust its VAT records to reflect the refund.
Special Rules for Sales of Goods Before January 1, 2021
If you were selling goods before January 1, 2021, certain rules applied to your transactions under the EU’s VAT regime. However, since the UK left the EU, new rules came into effect after this date.
- Goods Sold Before January 1, 2021: If you sold goods before January 1, 2021, you must follow the old rules for transactions that occurred during that time. For sales made after the date, the new post-Brexit rules apply.
How Do VAT Rules Apply to Goods Sold from the EU to Northern Ireland?
Northern Ireland (NI) holds a unique position within the UK’s VAT system due to the Northern Ireland Protocol, which means it continues to align with some EU VAT rules for goods.
Selling Goods from the EU to NI Customers: When goods are sold from the EU to customers in Northern Ireland:
- For consumers (B2C sales): If an online marketplace (OMP) facilitates the sale, the OMP is responsible for collecting and accounting for the VAT under EU rules (specifically the One Stop Shop – OSS). If the EU seller sells directly to an NI consumer, the EU seller is responsible for charging and accounting for the VAT.
- For businesses (B2B sales): Standard EU intra-community supply rules apply. The EU seller can zero-rate the sale if the NI business provides its UK VAT registration number (which begins with ‘XI’). The NI business then accounts for the VAT using the reverse charge mechanism.
Movement of Goods: Importantly, unlike movements from the EU to Great Britain, no customs declarations are required for goods moving from the EU to Northern Ireland under the Protocol. VAT is accounted for based on the destination principle (where the goods are consumed).
How VAT Affects Different Online Marketplaces UK
Amazon, eBay, and Etsy all follow the same UK VAT rules, but their systems handle the collection based on specific scenarios:
Amazon, eBay, and Etsy:
- Goods from outside the UK (<£135): The marketplace charges and collects UK VAT from the customer at the point of sale.
- Goods from outside the UK (>£135): The marketplace does not collect VAT. The customer is responsible for import VAT upon arrival in the UK.
- Goods already in the UK: If an overseas seller’s goods are located in the UK, the marketplace is responsible for collecting the VAT, regardless of the value.
The Bottom Line
The rules around VAT for online marketplaces in the UK are constantly evolving.
As a buyer, you’ll need to be aware of how VAT affects your purchases, especially for cross-border shopping. For sellers, keeping up with VAT requirements is crucial to avoid penalties and ensure smooth business operations.
Just remember to stay updated with the latest changes to keep your online shopping or selling experience hassle-free!
We Can Help
At Accotax, we’re a dedicated team of accountants to help businesses stay on top of their VAT obligations. Whether you’re an online marketplace seller or simply trying to understand VAT rules, our team of experts is here to guide you. We make VAT simple.
Reach out, get an instant quote and let us help you stay VAT compliant!
Disclaimer: The information provided in this article about “Online Marketplace VAT Rules UK – A Complete Guide 2025“ is for general guidance only. It should not be considered as tax, accounting, or legal advice. VAT laws and HMRC regulations may change, and their application can vary depending on individual business circumstances.
