Ecommerce Finance

VAT compliance for UK online sellers: registration, schemes and marketplace obligations.

VAT for online sellers has specific rules that differ from standard retail VAT. The registration threshold applies to taxable turnover, which for most sellers means gross selling price before platform fees, not net payout. Platform-collected VAT on overseas seller sales changes the analysis for marketplaces. The flat-rate scheme is typically disadvantageous for goods sellers. We handle VAT registration, returns and compliance for UK online sellers.

The challenges clients face.

The threshold is on gross sales, not what you receive

Amazon, eBay and Etsy deduct fees and settle a net payout. For VAT purposes, <a href="https://www.gov.uk/vat-registration">taxable turnover is the gross selling price</a> before the platform takes its cut. Sellers who monitor their bank balance or settlement payouts against the £90,000 threshold will breach it without realising, because the threshold is on gross sales.

Flat-rate scheme is usually wrong for goods sellers

The flat-rate scheme (FRS) allows VAT-registered businesses to pay a fixed percentage of gross turnover to HMRC instead of accounting for input and output VAT separately. For goods sellers, the <a href="https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay">limited-cost trader rate of 16.5%</a> applies where relevant goods spend is below 2% of turnover or below £1,000 a year. FRS forfeits input VAT recovery on stock purchases, making it a poor fit for most product sellers.

Cross-border VAT after marketplace rules changed

Non-UK-established sellers have no VAT registration threshold; the marketplace accounts for UK VAT on their sales. UK sellers selling into the EU face destination-country VAT obligations or must use EU OSS/IOSS schemes. These rules changed in 2021 and many sellers are still operating under pre-change assumptions.

VAT on platform fees and advertising

Where marketplace, advertising or software services are bought from an overseas supplier, <a href="https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a">the reverse charge under Notice 741A</a> means the buyer self-accounts for UK VAT. Crucially, the value of those reverse-charge services counts toward the £90,000 registration threshold, which catches sellers buying large volumes of overseas ad or platform services. Both the reverse-charge output and the input recovery go on the VAT return.

How we help.

VAT registration at the right time with the right scheme

We assess your taxable turnover correctly (gross sales, not net payout), advise on registration timing and select the appropriate VAT scheme for your selling model. We register you with HMRC and set up your VAT return process.

Ongoing VAT returns and compliance

We prepare and submit your VAT returns, account for platform fees and advertising through the reverse charge where applicable, and keep your VAT position compliant as your sales grow.

Cross-border and marketplace VAT advice

We advise on EU VAT obligations, OSS and IOSS registration for eligible sellers, and the UK £135 import rule for sellers fulfilling direct from overseas suppliers.

Common questions

Is my Amazon payout the same as my taxable turnover for VAT purposes?

No. Amazon settles a net payout after deducting its fees. For UK VAT purposes, taxable turnover is the gross selling price before Amazon takes its cut. The £90,000 VAT registration threshold is measured on gross sales. Monitoring your bank balance or settlement payouts against the threshold will cause you to breach it without realising.

Should I use the flat-rate scheme for my online selling?

For most goods sellers, no. The flat-rate scheme at the limited-cost trader rate of 16.5% means paying HMRC 16.5% of gross VAT-inclusive turnover. For sellers with significant stock costs, standard VAT accounting (claiming input VAT on purchases and paying output VAT on sales) is usually more favourable. The flat-rate scheme suits service businesses with low input VAT, not product sellers.

Do I need a separate VAT number for EU sales?

UK VAT registration only covers UK sales. EU sales to consumers may require EU OSS registration or individual country registrations depending on your volumes and fulfilment model. If you store goods in an EU country, you have a registration obligation there regardless of OSS. We assess the correct approach for your specific sales geography.