UK online marketplace VAT changes

The government has confirmed an extension of the UK’s VAT rules relating to sales via online marketplaces. From October 2027, marketplaces will become responsible for collecting and accounting for VAT on certain sales made by UK-established businesses, this being in addition to doing the same for non-established businesses.

How the UK online marketplace VAT rules are changing

The current deemed-supplier rules require marketplaces to account for VAT in two scenarios:

• on certain sales made by overseas businesses when the goods sold are in the UK
• for all businesses when goods are imported into the UK in consignments valued at £135 or less.

The extension will cover sales by UK-established businesses when goods in the UK are sold to a consumer and the seller is either UK VAT registered or has annual sales exceeding £90,000 on that marketplace. For qualifying transactions, the marketplace rather than the seller will collect and account for UK VAT.

The £90,000 test applies separately to each platform. Hence this differs from the normal VAT registration test, which considers a business’ total UK taxable turnover across all relevant sales channels. The platform threshold does not replace existing VAT registration obligations.

Which marketplace operators and UK sellers will be affected?

The rules will affect marketplace operators and UK businesses selling goods to consumers through platforms such as Amazon and eBay, as well as smaller or specialist marketplaces. It is important to note that these rules are relevant only when selling via the marketplace. Sales of goods made to the marketplace, for them to then sell, are not impacted.

It’s important to note that sellers may remain below £90,000 on each marketplace but still have to register for VAT because their combined taxable turnover across all platforms and other sales channels exceeds the normal VAT registration threshold. At this point, the new rules would also kick in, whether they are above the channel threshold or not.

Which sales are excluded from the new marketplace VAT rules?

The extension will not apply to:

• personal or non-business sales, such as individuals occasionally selling their belongings
• sales of second-hand goods
• B2B transactions
• sales which are not facilitated through an online marketplace.

Sellers should review whether their sales fall within the new rules or qualify for any of the exclusions. This will be particularly important for businesses with a mixture of consumer and business customers, or those selling both new and second-hand goods.

This may also be particularly relevant where occasional personal selling develops into regular trading.

Why the UK is extending VAT collection to online marketplaces

The original marketplace rules introduced in 2021 improved the compliance record of overseas sellers, but the government considers that significant non-compliance remains. HMRC estimates that tens of thousands of UK-based businesses trading through marketplaces are not meeting their VAT obligations, resulting in hundreds of millions of pounds of unpaid tax each year.

The government has also identified multiple examples of overseas businesses misrepresenting themselves as UK-established, which allows for VAT evasion, as they collect the cash but do not pass it to HMRC and then disappear. Moving VAT collection to marketplaces is intended to reduce these risks and create fairer competition between compliant online sellers and traditional retailers.

VAT compliance requirements for online marketplace operators

Online marketplace operators will need changes to seller onboarding, VAT determination, transaction processing, invoicing and reporting systems.

Accurate data will be central. Marketplaces may need to establish the seller’s location and VAT status, monitor annual platform sales, and check on the location of the goods and whether the customer is a business or consumer.

Current HMRC guidance expects operators to take reasonable and appropriate steps to check where sellers are established and retain supporting evidence. Suggested checks include validating VAT registration details and reviewing relevant Companies House information.

Operators should also consider how they will manage missing or conflicting information and identify sellers crossing the £90,000 threshold.

How marketplace VAT collection will affect UK sellers

Marketplace collection will not remove all the seller’s responsibilities. Businesses may still need to submit VAT returns, account for VAT on sales made through other channels and retain evidence supporting their VAT treatment.

Sellers should take steps to understand how the marketplace will calculate the VAT due and show it on settlement statements (marketplace payment reports). For businesses already charging and accounting for VAT correctly, customer prices may not need to change. The main impact is likely to be on how marketplace sales are recorded, reported on VAT returns and matched to payments received from the marketplace.

Pricing also needs closer attention where VAT has not previously been reflected in the consumer price or a seller enters the rules after exceeding the platform threshold. If the VAT-inclusive price remains unchanged, having to account for VAT could reduce net revenue and margin.

How to prepare for the October 2027 marketplace VAT changes

Businesses should focus on two priorities:

1. Review the sales they make on each marketplace to determine which transactions will fall within the new rules, taking into account the exclusions for B2B, personal and second-hand sales.
2. Review how VAT, marketplace fees, refunds and payments are recorded and consider how marketplace VAT collection could affect the amounts received, cashflow and VAT return reporting.

Detailed legislation and HMRC guidance are expected in the next few months, so businesses should avoid permanent system changes for now. However, identifying the affected transactions and data gaps should make implementation easier.

At Crowe, we can help online marketplace operators and sellers identify which transactions may fall within the new rules, review existing VAT processes and prepare for the accounting changes ahead.

If you would like to discuss how the changes may affect your business, please get in touch with your usual Crowe contact.