The VAT for the EU is based on the location of stock, the place from where the order is made, whether the marketplace collects tax and whether the consignment is more than €150.
For smaller sellers, compliance must make commercial sense. Destination VAT, intermediary fees, customs costs and software can reduce margin. Input VAT recovery is separate because OSS and IOSS returns cannot deduct input VAT.taxation-customs.
OSS and IOSS explained
| Sales route | Likely VAT route | Main point |
| Goods sent from the UK to an EU consumer, consignment up to €150 | IOSS | VAT collected at checkout and reported monthly |
| Goods sent from the UK above €150 | Normal import process | Import VAT and customs rules apply outside IOSS |
| Goods held in one EU country and sold to consumers elsewhere in the EU | Local VAT registration plus Union OSS | Domestic sales stay on the local return and eligible cross border sales go through OSS |
| Sale through a marketplace | Marketplace rules may apply | Check whether the platform is the deemed supplier and collects VAT |
OSS uses one registration and quarterly return for qualifying consumer sales, mainly where goods move between EU member states.vat-one-stop-shop.ec.
IOSS covers non excise goods outside the EU when sold and imported in consignments up to €150. A UK business normally needs an EU established intermediary.
Does the €10,000 threshold help UK sellers?
The €10,000 threshold applies only where the supplier is established in one EU state and other conditions are met. It does not generally protect a UK seller dispatching directly from Great Britain.vat-one-stop-shop.ec.
A UK brand should therefore avoid delaying its review until EU sales reach €10,000. The shipping route and stock location can create obligations from the first relevant sale.
Stock in an EU warehouse
Holding EU inventory usually requires local VAT registration, regardless of any VAT registration threshold that might otherwise apply. OSS does not replace the domestic return, but can simplify eligible sales to consumers in other member states.
Amazon FBA and fulfilment systems should track dispatch, destination, marketplace responsibility, VAT rate, returns and stock movements.
Marketplace sales
A marketplace may be the deemed supplier for imported consignments up to €150 and certain EU sales by non EU sellers. The platform then reports consumer VAT.vat-one-stop-shop.
Sellers must still reconcile settlements to sales, VAT, fees, refunds and cash. Incorrect customs use of the marketplace IOSS number can cause VAT to be collected again on delivery.
Input VAT recovery is separate
OSS and IOSS are reporting systems for output VAT collected from customers. Input VAT on warehousing, fulfilment, professional fees or local purchases cannot be deducted on those returns.
Alternatively, recovery could entail the use of a local VAT claim form or a reimbursement process depending on the country’s requirements. A small trader would have to weigh the pros and cons of VAT recoverability against the cost of registering. Chasing a modest refund can cost more than the tax recovered, while ignoring substantial input VAT can understate margin.taxation-customs.
Pricing and margin calculation
Assume a UK brand sells one product to a French consumer for a VAT inclusive price of €60. If the product carries France’s 20% standard VAT rate, the VAT calculation is:
- Net revenue: €60 divided by 1.20 equals €50
- Output VAT: €60 less €50 equals €10
- Product cost: €22
- Delivery and fulfilment: €10
- IOSS and payment administration: €2
- Temporary customs duty: €3 per relevant item
- Contribution before other overhead: €13
Since 1 July 2026, a temporary €3 customs duty per item applies to relevant consignments up to €150. It is due to run until 1 July 2028.taxation-customs.
A single European price can produce different net revenue as destination VAT rates vary. Passing all costs to buyers can weaken competitiveness.
Choosing the right model
Before registration, review these questions:
- Are goods shipped from the UK or stored in the EU?
- Is each customer a consumer or a VAT registered business?
- Is the marketplace responsible for VAT?
- Are direct consignments within the €150 IOSS limit?
- Who is the importer and who pays customs costs?
- How much EU input VAT is incurred and how can it be recovered?
- Can the checkout apply the correct destination rate?
- Does the margin remain acceptable after VAT, duty, returns and compliance fees?
OSS is quarterly and IOSS monthly. Scheme records generally require electronic retention for ten years.vat-one-stop-shop.
Common accounting errors
Errors include treating marketplace VAT as a fee, using OSS for domestic sales, claiming input VAT on OSS and missing refund adjustments. Exchange rates can also create reconciliation differences.
A monthly control account should reconcile sales, VAT, refunds, platform liabilities, fees, customs costs, cash flow and cash by country.
How UK ecommerce accountants help
UK ecommerce accountants assess channels, stock, customers and fulfilment before recommending a Ecommerce VAT route. They can identify direct and marketplace sales, assess the intermediary expenses, compare OSS and local returns, determine recoverable input VAT, and test destination margins. Such actions will help small companies to stay compliant while not choosing an inefficient model.
For brands selling through Amazon, Shopify, eBay, Etsy, TikTok Shop or their own website, we can review direct sales, marketplace settlements, EU fulfilment arrangements and the data flowing into Xero. This helps ensure that sales, refunds, platform fees, VAT and cash received are reconciled accurately, rather than relying on a single net payout figure.
