What UK Ecommerce Sellers Need to Know About VAT

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Two Mistakes Cause Most of the Trouble

Ecommerce sellers either ignore VAT until it is urgent or worry about it constantly without knowing the rules. Both end badly.

Two mistakes cause most of the damage: assuming the threshold is tested against a tax year, and assuming that selling through a marketplace hands your VAT obligations to the marketplace. Neither is true.

This covers the threshold and how it is actually tested, what marketplaces are and are not responsible for, selling into the EU, the separate rules for digital products, and what Making Tax Digital requires. Where the rules get genuinely difficult, which is anything crossing a border, this says so rather than pretending otherwise.

The Threshold, and How It Is Tested

The Numbers

Registration becomes compulsory once your VAT-taxable turnover passes £90,000. The deregistration threshold sits lower at £88,000, so a business whose turnover falls back can apply to come out.

You can also register voluntarily below the threshold, which suits sellers reclaiming VAT on stock or selling mainly to VAT-registered businesses.

The Backward Look

The test is not a tax year, a financial year or a calendar year. It is rolling: at the end of every month, add up the previous twelve months of taxable turnover and check it against the threshold.

Sales from June 2025 to May 2026 can take you over even if no calendar year did.

If you go over, you must tell HMRC within 30 days of the end of the month in which you exceeded it, and your registration takes effect from the first day of the second month after you went over. Go over during May and you notify by the end of June, with registration effective from 1 July.

The Forward Look

Separately, if at any point you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone, you must register by the end of that 30-day period, and registration is effective from the date you realised, not the date the turnover arrives.

That one catches sellers who land a wholesale order or run a campaign that works better than expected.

Keep a running twelve-month total. Any decent accounting package will show it.

Marketplaces: When the Platform Becomes the Seller

The deemed supplier rules introduced in January 2021 make the marketplace responsible for UK VAT in specific situations:

• An overseas seller selling goods already located in the UK to UK consumers, whatever the order value
• Any seller shipping goods into the UK in consignments with an intrinsic value of £135 or less to UK consumers

For goods over £135 imported from outside the UK, import VAT and duty are handled at the border in the usual way.

What this means if you are UK-based. Selling on Amazon or eBay to UK customers from UK-held stock, the deemed supplier rules do not change your position. Once registered, you account for VAT as normal.

Where it gets complicated is stock held abroad, including Fulfilment by Amazon arrangements that move your inventory into EU warehouses, which can create a registration obligation in those countries regardless of your UK position. The marketplace handling VAT on some transactions does not mean you have none.

Selling Into the EU

Brexit removed the old distance selling thresholds. What replaced them depends on the value of the consignment.

Goods at €150 or Less: IOSS

The Import One Stop Shop lets you charge VAT at the point of sale and account for it through a single monthly return. UK sellers generally cannot register directly and need an EU-based intermediary.

The alternative is not using IOSS, in which case VAT and any duty are collected from your customer when the parcel arrives. That produces surprise charges, refused deliveries and complaints, which is why most sellers with EU volume end up on IOSS.

Goods Above €150

Standard import procedures apply in the destination country, with rules varying between member states. Some sellers ship on Delivered Duty Paid terms and absorb the handling themselves to protect the customer experience, which is a commercial decision with VAT consequences in each country.

Northern Ireland

The position remains distinct under the Windsor Framework, with specific rules for goods moving between Great Britain and Northern Ireland and between Northern Ireland and the EU. If you trade either way, check GOV.UK and take advice.

Digital Products Are Different

Ebooks, templates, software licences, music, online courses and anything else delivered digitally follow their own rules.

UK Customers

If you are VAT-registered, charge UK VAT at the standard 20% rate. Straightforward.

EU Customers

VAT is due in the customer’s country at their local rate, and has been since 2015. Brexit did not change that.

Here is the part sellers miss: the €10,000 union-wide threshold that lets small EU businesses charge their home rate does not apply to UK businesses, because it is only available to sellers established in the EU. As a UK seller you are liable from your first sale to an EU consumer.

Your options are registering in each country where you have customers, which is impractical, or registering for the non-Union One Stop Shop, which lets you file one return covering all EU sales. A UK business registers for it in an EU member state of its choosing, and unlike IOSS it does not require an intermediary.

If you sell digital products internationally in any volume, this is the point to get advice rather than guess.

Making Tax Digital for VAT

MTD for VAT applies to every VAT-registered business, with no small business exemption.

It requires three things: VAT records kept digitally, returns submitted from compatible software rather than typed into HMRC’s portal, and digital links between your source records and the return. That last one is the most commonly broken. Copying a total from a sales report into your accounts by hand breaks the chain even when the number is right.

Software

Most cloud accounting packages qualify, including Xero, QuickBooks, Sage, FreeAgent and Zoho Books, and many connect directly to Shopify or WooCommerce to pull sales data without re-keying.

Two practical notes. QuickBooks’ entry plan, Sole Trader Plus at £10 a month excluding VAT, does not submit VAT returns; VAT filing starts on Simple Start at £16. And FreeAgent is free with NatWest, RBS, Ulster Bank and Mettle business accounts, with Mettle requiring at least one transaction a month, which makes it the cheapest compliant route for a lot of small sellers.

If you are VAT-registered and still on spreadsheets, bridging software is a legitimate stopgap, but a proper accounting package is the cleaner answer.

MTD for VAT Is Not MTD for Income Tax

Separate regimes, separate sign-ups, separate software lists. Being approved for one says nothing about the other. MTD for Income Tax has applied since April 2026 to sole traders and landlords with qualifying income above £50,000, dropping to £30,000 in April 2027, so many ecommerce sellers will be in both.

What Happens If You Get It Wrong

Late returns run on points. Each late submission earns one, four points triggers a £200 penalty for quarterly filers, and each subsequent late return adds another £200.

Late payment is charged separately, with penalties escalating the longer the tax is outstanding, plus interest.

Missed registration is the expensive one. HMRC can assess the VAT you should have charged going back four years, or twenty where the behaviour was deliberate, and you owe it whether or not you collected it from customers. Coming forward voluntarily produces materially lower penalties than being found.

FAQ

Do I have to charge VAT below the threshold?

No. Registration is optional below £90,000. Voluntary registration makes sense if you reclaim significant input VAT or sell mainly to VAT-registered businesses, and it is a mistake if your customers are consumers and your margins are thin.

Does Amazon handle my VAT if I use FBA?

Only in specific cases. The deemed supplier rules cover overseas sellers and low-value imports, not a UK seller shipping UK stock to UK customers. FBA arrangements that place your stock in EU fulfilment centres can also trigger registration obligations abroad.

Do I need to register for VAT in EU countries?

Possibly. For goods at €150 or less, IOSS can handle it through one registration. Above that, import VAT applies in the destination country. For digital products, the non-Union One Stop Shop covers all EU sales through a single return, and you are liable from the first sale because the €10,000 threshold does not apply to UK sellers.

What if I should have registered and did not?

Assessment for the VAT you should have charged, going back four years or twenty for deliberate behaviour, plus interest and penalties. Take advice quickly, because voluntary disclosure changes the penalty position significantly.

Can I stay on spreadsheets if I am VAT-registered?

Only with bridging software that maintains the digital link. Typing figures from a spreadsheet into HMRC’s portal has not been permitted for years.

VAT for UK Ecommerce Sellers: The Bottom Line

Watch the rolling twelve-month total at the end of every month, and remember the separate 30-day forward test. Register on time, because the backdated liability is yours whether or not you charged it.

Do not assume a marketplace has taken your VAT obligations away. It takes over in defined cases and leaves everything else with you.

Keep records digitally with linked data, and check that your plan actually includes VAT submission, because the cheapest tiers of some packages do not.

And for anything crossing a border, whether goods to EU customers, digital products sold internationally, or stock sitting in an overseas warehouse, take proper advice. The rules differ by country, they change, and the cost of advice is smaller than the cost of a backdated assessment in a jurisdiction you had not thought about.

This article is general information about UK VAT, not advice, and it does not take account of your circumstances. Thresholds, penalties and cross-border rules change. Software prices are correct at the time of writing and exclude VAT where stated. Speak to a qualified accountant or VAT specialist about your own position.