The UK government is considering a major change to the way VAT is collected on domestic marketplace sales. Under the proposal, an online marketplace could become responsible for accounting for VAT on qualifying business to consumer sales made by UK businesses when the goods are in the UK at the point of sale.
This is not law yet. The consultation closed on 18 August 2026, and the government is analysing feedback. If it proceeds, HMRC intends to publish a further technical consultation on draft legislation.
What is changing?
At present, marketplace liability mainly covers certain sales by overseas businesses, including low value imported goods and goods already located in the UK. UK established sellers generally remain responsible for VAT on their own domestic sales.
The proposal would extend the deemed supplier model to qualifying UK sellers. For a sale within scope:
- The seller would make a deemed zero rated supply to the marketplace.
- The marketplace would charge the correct VAT to the customer.
- The marketplace would report and pay that VAT to HMRC.
- The seller could continue recovering eligible input VAT under the normal rules.
Sales through the seller’s own website or physical shop would continue under the normal VAT rules. The proposal is aimed at business to consumer goods, including retail products and food sold through delivery platforms.
Who may be affected?
The effect will depend on the final design, VAT status and sales channels.
| Seller type | Possible effect |
| VAT registered marketplace seller | Marketplace may collect output VAT, while the seller continues claiming eligible input VAT |
| Seller below £90,000 turnover | May remain outside the measure under the lead threshold proposal, but lower threshold options are being considered |
| Multichannel seller | Marketplace and direct sales may require different VAT accounting treatments |
| Second hand goods business | Full price VAT could damage margins if marketplace sales cannot use the Margin Scheme |
| Private individual | Genuine non business sales, such as unwanted personal items, are intended to remain outside scope |
The threshold question
The government’s lead option is a Minimum Platform Threshold of £90,000. Under this approach, marketplace liability would apply when a UK business’s sales on one platform exceed £90,000. This platform test would not replace the normal VAT registration test, which looks at total taxable turnover across the business.
A UK business must currently register when taxable turnover exceeds £90,000 over the previous 12 months or is expected to exceed £90,000 in the next 30 days. Voluntary registration remains available below the threshold.
This distinction matters. A seller could make £55,000 on one marketplace and £45,000 through its website. No single platform exceeds £90,000, but total taxable turnover is £100,000, so the business may still need to register for VAT.
Input VAT versus margin
Smaller sellers may need to compare input VAT recovery with pressure on consumer prices. VAT registration can allow recovery of eligible VAT on stock, packaging, software, advertising, professional fees and some marketplace costs, provided the business has suitable evidence and the expenditure supports taxable activity.
However, input VAT recovery does not automatically cancel the effect of output VAT. Consider a standard rated product sold to a consumer for £120:
| Calculation | Amount |
| Customer price | £120 |
| VAT included at 20% | £20 |
| Revenue excluding VAT | £100 |
| Eligible input VAT recovered | £8 |
| Simplified net VAT cost | £12 |
If the seller keeps the customer price at £120, the £20 output VAT reduces net sales revenue before input VAT recovery. Raising the price to preserve margin may weaken competitiveness, while absorbing VAT can reduce profit. The correct decision therefore depends on product margin, recoverable VAT, marketplace fees and customer price sensitivity.
A seller below the registration threshold could voluntarily register if the marketplace starts applying VAT under a broad final model. That may improve input VAT recovery, but it also brings VAT returns, digital records, invoice checks and ongoing reconciliation. Remaining unregistered may reduce administration, although input VAT would normally remain a cost.
Cash flow and records
VAT registered sellers currently hold output VAT until it is paid to HMRC. If the marketplace collects it at checkout, that temporary cash flow benefit disappears. Businesses with large stock orders or long marketplace payout cycles should update their forecasts before any new rules begin to protect their Ecommerce Cash Flow.
Sellers should also prepare for more detailed reconciliation. Marketplace statements commonly combine sales, VAT, refunds, commissions, advertising, delivery charges, reserves and net payouts. Accounting systems will need to separate deemed marketplace supplies from website, wholesale and shop sales.
Watch these records closely:
- Gross sales by marketplace and channel.
- Product VAT rates and customer location.
- Refunds, discounts and cancellations.
- Marketplace fees and related VAT invoices.
- Stock purchases and import VAT evidence.
- Rolling twelve month taxable turnover.
- Marketplace sales measured against any final platform threshold.
Special risk areas
Second hand sellers face a particular concern. The existing Margin Scheme can calculate VAT on the difference between purchase and sale price rather than the full selling price. Marketplaces may not be able to apply that scheme when treated as supplier, so the consultation considers excluding second hand business sales or removing Margin Scheme access for marketplace sales.
The Flat Rate Scheme also needs review. It normally simplifies VAT by applying a fixed percentage to VAT inclusive turnover, but most input VAT cannot be reclaimed apart from limited capital asset cases. HMRC has specifically recognised that marketplace liability could affect businesses using this scheme.
What sellers should do now
- Do not change VAT treatment solely because of the consultation.
- Track turnover across every platform, website and physical location.
- Model profit at current prices with the marketplace collecting VAT.
- Compare staying unregistered with voluntary VAT registration where relevant.
- Review whether the Flat Rate Scheme or Margin Scheme remains suitable.
- Separate marketplace sales from direct sales in bookkeeping software.
- Monitor the government response and any draft legislation.
Professional bodies have supported extending liability for domestic VAT registered sellers but warned that the proposed VAT rate relief could place disproportionate burdens on the smallest businesses. This reinforces the need to wait for the final design rather than assume that either protection option will be adopted.
How UK Ecommerce Accountants can help
UK Ecommerce Accountants can assess how the proposed rules may affect pricing, contribution margin, VAT recovery and cash flow across Amazon, eBay, Etsy, TikTok Shop, Shopify and direct sales. Our Ecommerce VAT service can review VAT registration, input VAT evidence, schemes, returns and marketplace treatment, while Ecommerce Tax Planning can model the wider tax and commercial impact. We can also support accurate marketplace reconciliation through ecommerce bookkeeping and prepare channel level forecasts through Ecommerce Cash Flow, helping sellers protect margins while remaining ready for any final legislation.
Frequently asked questions
Are the proposed marketplace VAT changes already law?
No. The consultation has closed, but the government has not confirmed final rules or an implementation date. A technical consultation on draft legislation is expected if the policy proceeds.
Will a £90,000 platform threshold replace VAT registration?
No. The suggested threshold applies per platform for marketplace liability. Normal VAT registration is still based on the business’s total taxable turnover across relevant channels.
Can sellers still recover input VAT?
Under the proposal, VAT registered sellers would continue recovering eligible input VAT under the normal rules, even where the marketplace accounts for VAT on the consumer sale.
