UK VAT for Ecommerce Sellers (2025/26)

UK ecommerce VAT is more complicated than VAT for a traditional services business — not because the rules are different (they aren't), but because the surface area is bigger. You have stock that moves across borders, marketplaces that sometimes act as the seller for VAT and sometimes don't, EU customers post-Brexit, and import VAT that hits your cash flow before you've even sold anything. This guide covers what UK ecommerce sellers actually need to know in 2025/26.

The rules below apply if you're registered in the UK (sole trader or limited company) and selling physical goods. Digital products, dropshipping from non-UK suppliers, and large multi-jurisdiction setups have additional layers — message us if that's you.

The £90,000 registration threshold

The UK VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period. It rose from £85,000 to £90,000 on 1 April 2024 and is held at £90,000 for 2025/26. Two important nuances:

• Rolling, not tax-year. Take your last twelve months of sales (whatever today's date is). If they exceed £90,000, you must register. You don't get to wait for the end of your tax year.
• The "next 30 days alone" test. If you reasonably expect your taxable turnover to exceed £90,000 in just the next 30 days (because you're about to launch a viral product, sign a big wholesale order, etc.), you must register immediately.

The £90,000 figure is sales, not profit. It's also gross — before marketplace fees, before refunds, before any discount you give. Refunds reduce the figure but only once they're actually issued.

Marketplace VAT: who actually collects?

Since 1 January 2021, online marketplaces are deemed the seller for UK VAT in two specific scenarios:

1. Goods located outside the UK at the point of sale, regardless of value (the old £15 low-value threshold is abolished). The marketplace charges UK VAT to the buyer and remits it directly.
2. Goods located in the UK and sold by a non-UK established seller. Again, marketplace collects and remits.

If you are a UK-established seller selling goods that are located in the UK at the point of sale, you remain the VAT-responsible party. The marketplace acts as a payment platform; you still need to register for VAT yourself once you hit £90,000, and you still need to charge VAT on your sales.

What this means in practice for the major platforms:

Where this catches people out: a UK seller using Amazon's Pan-European FBA programme has stock automatically moved into German and French warehouses by Amazon. Those EU sales are then "goods located outside the UK at the point of sale" — but they're sold to EU customers, not UK ones. UK VAT doesn't apply; EU VAT does, and you almost certainly need to register in those countries or use the OSS scheme via an EU intermediary. See the FBA stock movements section below.

Voluntary VAT registration — when it pays

You can register for VAT voluntarily before hitting £90,000. There are three situations where this usually makes sense:

1. Most of your customers are VAT-registered businesses

If your customers reclaim the VAT on your invoices, the 20% looks like a price rise but isn't — they get it back. Meanwhile you reclaim VAT on your own costs (Amazon FBA fees, Shopify subscriptions, supplier purchases, freight) which you couldn't before. Net result: you're typically better off registered. This applies to B2B sellers, wholesale-heavy DTC brands, and SaaS-adjacent sellers.

2. You import a lot of stock

Every shipment of imported stock attracts import VAT at the border (or on your PVA statement — see PVA section). If you're not VAT-registered, that's a sunk cost. Once registered, you reclaim it. For a seller doing £200,000/year of imports, that's £40,000 of VAT you'd otherwise eat.

3. You're approaching the threshold and want to control the switch

Voluntary registration lets you set prices, update marketplace listings, and tell suppliers before HMRC forces the issue. Once you're forced, you have to register within 30 days of crossing the line — and you start charging VAT from the first day of the second month after, ready or not.

Voluntary registration is almost always wrong if your customers are end consumers, you import very little, and you're well under the threshold. The admin burden (quarterly returns, MTD-compatible software, record-keeping) is real and Amazon will not refund your buyers' VAT for you.

How to register for VAT

The mechanics, as of 2025/26:

1. Sign in to your HMRC business tax account at gov.uk. You need a Government Gateway user ID.
2. Apply to register for VAT via the online VAT registration service. The application asks for your business details, expected turnover, the date you crossed the threshold (or your chosen voluntary date), and your bank details for any future refunds.
3. Choose an effective date of registration. If you crossed the threshold, this is the first day of the second month after you crossed (e.g. crossed on 12 March → effective 1 May). If voluntary, you choose — usually the start of your next quarter.
4. Wait for your VAT number. HMRC takes 10–30 working days to issue a number. You can charge VAT during the wait but you can't show "VAT number TBC" on invoices — you have to add the VAT once your number arrives.
5. Set up MTD-compatible software. Making Tax Digital for VAT requires you to submit returns via API. Xero, QuickBooks, FreeAgent, Sage and others are all MTD-compatible. Spreadsheet-only submission is no longer permitted for VAT-registered businesses.
6. Update your marketplace settings. Add your VAT number to your Amazon, eBay, Etsy, TikTok Shop and Shopify accounts. Some platforms (Amazon especially) require this for tax reporting reasons.

The full HMRC walkthrough is at gov.uk/register-for-vat. We also have a step-by-step How to register for UK VAT as an ecommerce seller with screenshots and gotchas.

VAT schemes for ecommerce

Standard VAT (the default) means you charge 20% on UK sales, reclaim 20% on UK costs, and pay HMRC the difference quarterly. There are also two schemes ecommerce sellers should know about:

The Flat Rate Scheme (FRS)

Pay a fixed percentage of gross turnover (the rate depends on your sector — typically 7.5%–9.5% for retailers). You keep the difference between what you charged customers (20%) and what you pay HMRC. The catch: you can't reclaim input VAT except on capital purchases over £2,000. For most ecommerce sellers with high import costs, FRS leaves money on the table.

The Annual Accounting Scheme

Submit one VAT return per year instead of four, with monthly or quarterly interim payments. Useful for cash-flow predictability; admin-light. Available if turnover is under £1.35M. Doesn't change the amount of VAT you pay overall.

Standard VAT is the right choice for most ecommerce sellers with meaningful imports or marketplace fees to reclaim against.

Selling into the EU — OSS & IOSS post-Brexit

Since the UK left the EU VAT area on 1 January 2021, selling to EU consumers (B2C) is treated as an export from the UK and an import into the EU. There are three ways UK sellers handle this:

1. Marketplace handles it (easy mode)

If you sell on Amazon EU, eBay EU, Etsy or TikTok Shop and your sales are facilitated through the marketplace, the marketplace handles EU VAT for sales under €150 via their own IOSS registration. You don't need to register for OSS or IOSS yourself for those sales. Sales above €150 are handled by standard import processes (customer pays VAT on delivery, or you pre-pay via DDP).

2. Direct sales via Shopify / your own site — IOSS

For B2C goods under €150 shipped from the UK to an EU customer, register for IOSS in one EU member state (or use an EU-established intermediary). You charge EU VAT at the point of sale, the shipment clears customs without further VAT being charged to the customer, and you file a monthly IOSS return covering all 27 EU member states. HMRC IOSS guidance.

3. Direct sales — over €150 or selling B2B

Over €150, the customer typically pays import VAT and duty on delivery (unless you offer "Delivered Duty Paid" via DDP). For B2B sales, the reverse charge applies — your customer self-accounts for VAT in their country.

If your direct EU B2C sales are minimal (under €10,000/year), the UK low-volume threshold means you can use UK VAT rules and report on your normal UK VAT return. Above that, OSS/IOSS becomes more or less mandatory.

Postponed VAT Accounting (PVA)

Before PVA: when you imported stock, you paid import VAT at the border and reclaimed it later on your VAT return. The gap between paying and reclaiming was always at least a quarter and often longer. For high-volume importers it tied up serious cash flow.

With PVA, you don't pay at the border at all. Instead you:

1. Have your freight forwarder (or yourself, if you do the import declaration) tick "Postponed VAT Accounting" on the customs declaration. This is just a tick box — no extra cost, no extra paperwork.
2. Each month, log into the Customs Declaration Service on HMRC and download your monthly PVA statement. It shows the VAT that would have been paid on each shipment.
3. On your VAT return, report the total in both Box 1 (output VAT) and Box 4 (input VAT). They cancel each other out — net zero VAT impact on this return.

The net cash-flow effect is that import VAT is no longer a working capital cost. For UK ecommerce sellers importing more than ~£100k/year of stock, PVA is one of the most valuable single decisions you can make. Use it unless you have a specific reason not to. HMRC PVA guidance.

Amazon FBA stock movements — the silent VAT trap

If you use Amazon's Pan-European FBA programme (the default for UK sellers selling on Amazon.de, Amazon.fr etc.), Amazon will automatically move your stock between FBA warehouses across the UK, Germany, France, Spain, Italy, Czech Republic and Poland. Every cross-border movement is treated, for VAT purposes, as a "movement of own goods".

The consequence: you become liable to register for VAT in every country your stock is stored, even if you never have a sale to a customer in that country. The thresholds are zero — a single pallet sitting in a German FBA warehouse triggers a German VAT registration obligation.

Three responses, in order of cost and complexity:

1. FBA UK-only. Disable Pan-European FBA. Sell to EU customers via fulfilment from the UK (with the post-Brexit friction). Simplest and cheapest if your EU sales are a small share of revenue.
2. Multi-country VAT registration. Register in each FBA country (DE, FR, ES, IT, CZ, PL). Use a service like Avalara or hellotax to handle filings. Costs £4,000–£8,000/year all-in but unlocks the lower fulfilment fees of Pan-EU FBA. Pays for itself above ~£250k/year of EU FBA sales.
3. European Fulfilment Network (EFN). Keep stock in the UK, let Amazon fulfil EU orders from UK FBA. Slower delivery (turns off Prime in some cases) and higher per-unit fees, but no foreign VAT registrations.

Most UK sellers under £500k/year are better off with option 1 or 3 unless they have a specific EU market strategy.

Plastic Packaging Tax

Separate from VAT but worth flagging because UK ecommerce sellers often miss it: Plastic Packaging Tax (PPT) applies if you manufacture or import more than 10 tonnes of plastic packaging per year and that packaging contains less than 30% recycled plastic. The rate is £223.69/tonne for 2024/25 (rising annually with CPI).

"Manufacture or import" includes packaging on finished imported goods. If you import bottles, bubble wrap, plastic mailers, blister packs, etc., you may be in scope. The 10-tonne threshold sounds high but a single 40ft container of plastic-packaged consumer goods can easily hit it.

If you're under 10 tonnes you don't pay the tax but you do still need to keep records. HMRC PPT step-by-step.

Common mistakes that cost UK ecommerce sellers money

• Not using PVA. Every UK ecommerce importer who is VAT-registered should be on PVA. The cash-flow saving is free money. If your freight forwarder isn't ticking the box, switch forwarders.
• Missing the £90k threshold for months. HMRC backdate registration to the date you should have registered, and you owe VAT on every sale since — even though you didn't charge it to the customer. Set a calendar reminder when you cross £75k.
• Voluntary registration when your customers are end consumers. You're effectively giving HMRC 20% of every sale you'd otherwise have kept.
• Flat Rate Scheme for high-import sellers. The 7.5–9.5% you save on output VAT is dwarfed by the input VAT you can't reclaim on imports.
• Pan-European FBA without country VAT registrations. HMRC and the EU tax authorities increasingly share data. The fines for unregistered cross-border movements are catching up with sellers from 2020–2023.
• Treating marketplace-collected VAT as your own. Amazon's deducted VAT goes to HMRC, not to you. Your VAT return needs to exclude those marketplace-handled sales from your own output VAT, or you'll double-pay.