If you sell physical goods online — whether on your own website, through Amazon, Etsy, or a combination — UK VAT rules are almost certainly more complex than your platform dashboard suggests. This guide covers the essentials: when you must register, how EU sales work after Brexit, what to do about marketplace transactions, and the mistakes that cost online sellers real money.
The UK VAT Registration Threshold
As of April 2024, the UK VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period.
Two things trip people up here.
First: it is a rolling 12-month period, not a tax year or calendar year. HMRC looks back at the previous 12 months at the end of every month. If your turnover in any rolling 12-month window exceeds £90,000, you must register — regardless of whether you hit that figure in a single month or spread across the year.
Second: the threshold applies to taxable turnover, which includes zero-rated supplies as well as standard-rated ones. If you sell a mix of standard-rated and zero-rated goods, the combined figure counts.
Once you breach the threshold, you must notify HMRC within 30 days. Register late and HMRC can backdate your liability to the date you should have registered — plus penalties and interest.
Voluntary registration below the threshold is often sensible if your customers are VAT-registered businesses (they reclaim what you charge) or if you want to recover input VAT on your purchases.
Post-Brexit: Selling to EU Customers
Brexit fundamentally changed the VAT treatment of goods sold from the UK into the EU. The old distance selling thresholds no longer apply to UK sellers.
Consignments Under €150: IOSS
The Import One-Stop Shop (IOSS) allows UK sellers to charge EU VAT at the point of sale for B2C goods under €150, report it via a single monthly EU return (filed through an EU intermediary), and ship without import VAT being charged at the border.
Without IOSS, the buyer is hit with import VAT and customs fees on delivery — poor customer experience and higher cart abandonment. For any meaningful volume of EU consumer sales, IOSS registration pays for itself quickly.
Consignments Over €150
IOSS does not apply. Each shipment faces customs duties and import VAT in the destination country, typically paid by the buyer on delivery. Your obligations are limited to correct customs documentation: commodity codes, accurate values, and country of origin declarations.
B2B Sales to EU Businesses
If your EU customer is VAT-registered in their home country, the supply is generally zero-rated for UK VAT purposes. You must obtain and validate the customer’s EU VAT number via VIES, retain evidence of export, and include the sale on your return as a zero-rated export. The customer accounts for VAT domestically under the reverse charge.
Northern Ireland
If you ship from Northern Ireland, the Windsor Framework means different rules apply. Northern Ireland remains aligned with EU VAT rules for goods. The OSS distance selling thresholds still apply to NI-to-EU B2C sales. This is an area where specialist advice is essential.
Marketplace Liability: What Platforms Don’t Make Clear
Since January 2021, UK legislation made online marketplaces deemed suppliers for VAT in certain situations — meaning the marketplace collects and remits VAT instead of you. This applies when:
- You are an overseas seller selling goods to UK customers (any order value).
- You are a UK seller selling goods worth £135 or less to UK customers via an overseas goods fulfilment model (e.g., Amazon FBA stock imported from outside the UK).
In these cases, Amazon or Etsy collect VAT from the buyer and remit it to HMRC. You receive the net amount.
The trap: If you also sell direct-to-consumer via your own website, your accounting software needs to correctly identify which transactions carried VAT collected by the marketplace and which you collected yourself. Failing to map this correctly means reporting and paying VAT on sales the marketplace already settled — effectively paying twice.
Use accounting software with marketplace integrations (Xero, QuickBooks, and A2X for Amazon handle this well) and reconcile settlement reports monthly.
Common Mistakes in E-commerce VAT
Treating marketplace income as gross revenue. When a marketplace is the deemed supplier, your taxable supply may be the net amount you receive, not the gross sale price. This affects both your threshold calculation and your return figures.
Ignoring EU warehouse registrations. If you use EU fulfilment centres — such as Amazon’s Pan-European FBA — you may be making domestic supplies within EU countries where the goods are stored. This can trigger VAT registration obligations in those countries entirely separately from UK VAT.
Applying the wrong VAT rate. Children’s clothing, most food, and books are zero-rated. Energy-saving materials and children’s car seats are reduced-rated at 5%. Mis-rating goods in either direction creates errors that HMRC picks up during inspections.
Missing the deregistration threshold. If turnover falls below £88,000 (deliberately set below the registration threshold), you can apply to deregister. Staying registered when you don’t need to be carries ongoing compliance cost without benefit.
Practical Steps for Online Sellers
- Track your rolling 12-month turnover monthly. Do not wait until the end of the tax year.
- Register before you breach — you have 30 days after exceeding the threshold, but registering early avoids late registration penalties.
- Audit your platform integrations. Know which channels collect VAT on your behalf and which don’t. Your VAT return needs to reflect reality, not just bank deposits.
- Get EU VAT advice if you sell into the EU. IOSS, country-specific registration, and the Northern Ireland protocol are genuinely complex.
- Review your pricing before registration. Adding 20% to prices overnight damages conversion. Many businesses adjust margins slightly rather than passing the full increase to customers.
VAT compliance is one of those areas where the penalty for ignorance is no lower than for deliberate evasion. If your e-commerce business is growing, building a proper VAT process from the start is far less painful than cleaning up years of errors under HMRC scrutiny.
If you’d like help reviewing your VAT position or setting up a compliant accounting process for your online business, speak to the Page Ivy team.
