UK online sellers must register for VAT when their UK taxable turnover exceeds £90,000 over a rolling 12 months. Marketplace sales by non-UK sellers have separate rules where Amazon or eBay collect the VAT. Sales to EU consumers go through IOSS for low-value goods or direct EU registration for higher values.
VAT is the single most-confusing area of UK e-commerce compliance. Get it wrong and HMRC backdates the liability plus penalties. Get it right and the cash flow is predictable.
The UK threshold
Same threshold as any other UK business: £90,000 of taxable turnover over a rolling 12 months. Taxable turnover means standard-rated, reduced-rated, and zero-rated sales. Exempt sales (rare in e-commerce) do not count.
For online sellers, the threshold is checked at the end of every month, not at year-end. If your rolling 12-month UK taxable turnover hits £90,000 at the end of October, you must register within 30 days, effective from 1 December.
There is also a 30-day forward test. If you reasonably expect a single 30-day period to exceed £90,000 (a big launch, a viral product, a major contract), you must register immediately.
When you should register voluntarily
Below the threshold, registration is optional. Three situations where voluntary registration helps:
Your customers are mostly other VAT-registered businesses. Your output VAT is just a recoverable cost to them. You get to reclaim input VAT on your own purchases. Net cash gain.
You have significant input VAT relative to output. Capital-heavy startups with low initial sales, or sellers with high-value stock investment.
You sell mostly zero-rated products. Most food, children's clothing, books, newspapers. You charge 0% but reclaim VAT on inputs. Free money on the reclaim side.
Against voluntary registration: paperwork, slightly more complex pricing, and a strict requirement to use MTD-compatible software.
Selling to UK consumers
Standard rate of 20% applies to most goods. Reduced rate of 5% applies to specific categories like domestic energy. Zero rate (0%) applies to most food, children's clothing, books, newspapers, and certain other categories.
VAT is included in the price shown to UK consumers. So a £30 product is £30 inc VAT, which is £25 ex VAT plus £5 VAT.
Selling through marketplaces (Amazon, eBay)
Since 2021 the rules for marketplaces are different from direct sales.
If you are a UK-established business selling through a UK marketplace:
- You collect VAT on your sales and remit it to HMRC normally.
- The marketplace does not collect VAT on your behalf.
If you are a non-UK business selling through a UK marketplace to UK consumers:
- For goods already in the UK at point of sale: the marketplace collects and remits the VAT, not the seller.
- For goods under £135 imported into the UK from outside: the marketplace collects UK VAT at point of sale (no import VAT separately).
- For goods over £135 imported from outside: standard import VAT at the border, then sold normally.
This change in 2021 stopped non-UK sellers undercutting UK competitors by ignoring VAT.
Selling to EU consumers (post-Brexit)
UK sales to EU consumers became export sales after Brexit. Two routes for low-value goods:
IOSS (Import One Stop Shop): for goods under €150 sold to EU consumers. You charge EU VAT at the destination country's rate at point of sale, submit a single monthly return covering all EU member states. Requires registration through an EU member state (Ireland is common for UK sellers).
Direct EU registration: for higher-value goods or where IOSS doesn't fit. Register in each EU member state where you exceed the local distance-selling threshold. Significantly more administrative work.
Above €150 per consignment, normal EU import processes apply. The buyer typically pays VAT and customs at the door, which kills consumer conversion. Most UK sellers either use IOSS or stop selling EU at higher price points.
Distance selling within the UK
UK to UK sales are domestic sales. No special "distance selling" rules apply within the UK, though consumer-protection rules (14-day returns) do.
VAT filing rhythm
Once registered, you file VAT returns. Most UK e-commerce businesses are on a quarterly cycle:
- Q1: returns and payment due 1 calendar month plus 7 days after the quarter end.
- MTD-compatible software submits the return.
- Direct debit pays the VAT 3 working days after the due date.
Most UK e-commerce sellers use Xero, QuickBooks, Sage, or FreeAgent for VAT-compliant bookkeeping. Marketplace fees integrate with each.
The Flat Rate Scheme: when it works for e-commerce
Eligible if taxable turnover is under £150,000. You pay a fixed percentage of gross VAT-inclusive turnover instead of calculating output minus input VAT.
For most product-based e-commerce, the Flat Rate Scheme is not worth it. The fixed rate for retailers (typically 7.5%) loses to standard accounting where you can reclaim VAT on inventory, packaging, ads, and platform fees.
Exception: service-based e-commerce businesses with very low input VAT (digital products, courses, design services). The Flat Rate Scheme can be a small win, though the "limited cost trader" rule (16.5%) often catches these too.
Common online-seller VAT mistakes
Missing the rolling 12-month test. People check at year-end and get backdated three months.
Not registering when crossing the threshold due to a launch month spike. The 30-day forward test catches this.
Charging VAT to EU consumers without IOSS or local registration. Looks compliant on the surface, illegal in practice.
Treating marketplace fees as net of VAT when they include VAT (most do). Reclaim is missed.
Forgetting MTD compatibility. VAT registration triggers MTD obligations. Spreadsheet-only workflows do not comply.
Bottom line
Track your rolling 12-month UK taxable turnover every month. Register at £90,000. Use MTD-compatible software from day one of registration. For EU sales, use IOSS for small items and accept that EU is harder than it used to be.