Marketplace VAT Explained: What Changes for Online Sellers Such as Amazon and Etsy

If you sell through Amazon, eBay, Etsy, or TikTok Shop, the way VAT is handled on those sales is about to change. In last week's Budget, the government confirmed that online marketplaces will take over responsibility for collecting VAT on sales made by many UK businesses, rather than leaving it to the sellers themselves. 

The new rules won’t be implemented until October 2027, but if marketplaces make up a good chunk of your online sales, it's worth preparing for them now. 

What is changing with VAT on online marketplaces? 

Since 2021, marketplaces have been responsible for VAT on certain sales made by overseas sellers. The new rules extend that responsibility to UK businesses too. 

According to the government's policy paper, marketplaces will collect VAT on sales made by UK VAT-registered businesses, plus any other UK business with annual sales of more than £90,000 on a single platform. Rather than you charging VAT, holding onto it and paying it to HMRC with your return, the platform will take it at the point of sale and pay it over itself. 

The aim is to stop overseas sellers getting round the 2021 rules by misrepresenting where they're based, and to catch UK businesses that don't register or under-declare. HMRC expects it to raise more than £1.2 billion over five years. 

Which sellers will be affected? 

HMRC estimates around 100,000 businesses will be significantly affected. The rules apply to goods that are in the UK at the point of sale and sold to consumers, so it's the everyday business-to-consumer sale on a marketplace that's in scope. 

If you're already VAT-registered and sell through a marketplace, you'll be caught by the new rules regardless of how much you sell on each platform. If you're not VAT-registered and your sales on a platform stay under £90,000 a year, you should fall outside them, although exactly how the threshold is measured will be set out in secondary legislation over the coming months. 

That threshold has been the main sticking point for the platforms themselves. eBay UK's Eve Williams told ITV News that while overseas sellers should meet their obligations, domestic sellers shouldn't be unfairly hit and called for the tax-free trading allowance to be raised from £1,000 to £3,000 so people can test business ideas more easily. eBay has been making a point of backing small UK sellers for a while, including at Autumn Fair last year. 

Will sellers end up paying more VAT? 

On paper, no. The measure doesn't increase anyone's VAT liability; it just changes who collects it. If you're VAT-registered, you're already charging VAT on marketplace sales, and the total owed stays the same. 

Where it could make a difference is price. The policy paper acknowledges prices may rise if sellers pass the change on, and sellers who've been under-declaring will lose that edge, which could level things up for honest businesses they've been undercutting. 

How will it affect cash flow? 

For most VAT-registered sellers, this is the change that will be felt day to day. At the moment, the VAT you collect on a sale sits in your account until your return is due, which for many small businesses means a quarter. It isn't your money, but it does smooth out the bumps between paying suppliers and getting paid yourself. 

Under the new rules, the marketplace takes the VAT at source, so that buffer disappears. On top of that, you'll still be paying VAT on your stock, packaging and other costs, which means some businesses will find themselves reclaiming more from HMRC than they owe. The policy paper itself notes that some sellers may need alternative cash flow arrangements, and some will move into a repayment position. 

If most of your online sales go through marketplaces, sit down with your accountant early to model what that gap looks like across a year, especially around Christmas when you're buying stock heavily. 

Are wholesale and second-hand sales included? 

Business-to-business sales are excluded, so wholesale orders from retailers aren't affected. Whether a shop places an order with you face to face, through your own website or through a wholesale platform like Faire UK, it falls outside the new rules. 

Plenty of makers and small brands already balance both, selling direct to shoppers online while building a wholesale base with independent retailers through platforms and retail trade shows. The Faire Forecast session is a good example of how closely the online and in-person wholesale worlds now work together, and the same goes for categories like homeware and outdoor living, where buyers still like to see and feel products before committing. 

Second-hand goods are also set to sit outside the rules, although the detail will come through secondary legislation. That will be welcome news for resellers and for the growing number of retailers experimenting with resale, like IKEA's second-hand marketplace. 

How should independent retailers and brands prepare? 

Start by working out how much you sell through each platform and whether you're VAT-registered, as that tells you straight away whether you're in scope. Then look at pricing. If the change squeezes your margins on a platform on top of rising fees, it might be time to adjust prices or rethink what you list there. 

It's also a good moment to review your channel mix. Building up your own website, social selling (see our guide on whether independent retailers should sell on TikTok Shop) or wholesale gives you more control over how and when you get paid. Fashion brands already dealing with high marketplace return rates may feel the cash flow effect most, so it's worth factoring in alongside the wider shifts in fashion retail. 

Keep an eye out for the secondary legislation too, which will confirm how the £90,000 threshold works and how second-hand goods are treated. For a wider look at what else the Chancellor announced, including business rates relief and minimum wage changes, read our breakdown of how the Budget will affect retailers. 

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