E-commerce VAT

The VAT treatment of e-commerce transactions has undergone significant change following the UK's departure from the EU and the implementation of the post-Brexit VAT regime. Online sellers, marketplace operators, and fulfilment businesses must navigate a complex set of rules that differ depending on the value of goods, origin and destination, and the involvement of online marketplaces.

VAT on Online Sales

UK-based businesses selling goods online to UK customers apply the standard UK VAT rules based on the nature of the goods supplied. The place of supply for goods is generally where the goods are located when the supply takes place. For services supplied electronically (downloads, streaming, SaaS), the place of supply is where the customer belongs. UK businesses selling digital services to consumers overseas may need to register for VAT or similar taxes in the customer's country.

Post-Brexit Distance Selling Rules

The EU distance selling rules no longer apply to the UK. For UK businesses selling goods to EU consumers, VAT is generally due in the EU country of the consumer. Many UK businesses have registered for the EU's One Stop Shop (OSS) scheme to simplify compliance. Conversely, EU businesses selling to UK consumers must account for UK VAT — and may need to register for UK VAT if they are not using fulfilment services in the UK.

One Stop Shop (OSS)

The OSS allows businesses selling goods to consumers in other EU member states to declare and pay VAT via a single electronic quarterly return in one EU member state. The VAT is charged at the rate applicable in the consumer's country. The OSS replaces the need for separate VAT registrations in multiple EU countries. Non-EU businesses can also use the Import One Stop Shop (IOSS) scheme.

IOSS for Imports Under £135

The Import One Stop Shop (IOSS) covers the import of goods of low value (under approximately £135 / €150) into the EU. For UK businesses selling low-value goods to EU consumers, using the IOSS means the goods can be released into free circulation without the consumer having to pay import VAT at the point of entry. Instead, the seller charges VAT at the rate of the consumer's country and accounts for it via the IOSS return.

Marketplace Responsibilities

Online marketplaces such as Amazon, eBay, and Etsy have specific VAT responsibilities. Since 2021, marketplaces are responsible for collecting and accounting for UK VAT on sales of goods located in Great Britain that are sold by overseas sellers to UK consumers. Marketplaces are also treated as the supplier for goods valued under £135 that are imported from overseas and sold to UK consumers. This means the marketplace must register for UK VAT, charge VAT on the sale, and account for it to HMRC.

Records

E-commerce businesses must maintain detailed records of all online sales, including the value of goods, destination, VAT charged, and any applicable import or export documentation. Records must be kept digitally in accordance with MTD requirements. HMRC can require access to marketplace data to verify compliance, and transactions reported by marketplaces are increasingly cross-referenced with seller VAT returns.