UK marketplace sellers could be facing a major change in how VAT is collected on online sales. The government is consulting on a proposal that would make online marketplaces responsible for accounting for VAT on more sales made by UK-based businesses to consumers. It is not yet a new law, but it matters now: the choices made in this consultation could reshape pricing, cash flow, bookkeeping and platform reporting for thousands of small firms.
For entrepreneurs selling through marketplaces alongside a shop, a day job or shift work, the practical message is straightforward: do not wait for a final policy announcement before understanding your numbers. Sellers who trade through several apps or websites, including food-delivery platforms, may be especially affected because the consultation is focused on sales made through each individual marketplace.
The government says its aim is to reduce VAT non-compliance that can allow some businesses to undercut firms that register, charge and pay VAT correctly. HMRC estimates that tens of thousands of UK-based businesses trading through online marketplaces may not be meeting their VAT obligations, with the potential loss running to hundreds of millions of pounds. The official marketplace liability factsheet sets out the policy case.
What is the government proposing?
The consultation proposes extending existing online marketplace liability rules to certain sales made by UK-based businesses. In plain English, a marketplace could become responsible for charging and accounting for the VAT due on a business-to-consumer sale that it facilitates, instead of leaving that VAT accounting to the seller.
This builds on rules introduced in 2021 for particular sales by overseas sellers. Under the proposed extension, the focus would be UK businesses selling goods that are situated in the UK when sold through an online marketplace. The consultation also makes clear that it is concerned with business-to-consumer sales, rather than every possible transaction on a platform.
That distinction is important. A platform is not necessarily just a website that displays an advert. HMRC guidance describes an online marketplace as a website or app that allows third parties to offer goods and is involved in setting sales terms, enabling payment, or ordering or delivery. A business that only advertises listings, processes a payment, or redirects shoppers elsewhere may fall outside that definition. Sellers should not assume every digital channel will be treated in the same way.
The proposed change would not alter the VAT status of the goods themselves. A product that is zero-rated would remain zero-rated; a product taxable at the standard rate would remain taxable at that rate. The proposed difference is who accounts for VAT on the marketplace sale. The government’s full consultation document says a VAT-registered seller’s supply to the marketplace would, as currently envisaged, be treated as a deemed zero-rated supply, while the marketplace charges and accounts for VAT on the consumer-facing sale.
Why the reform is being considered
VAT compliance has long been a difficult issue where third-party sellers use large platforms. The government says the earlier marketplace reforms improved collection on qualifying sales by overseas businesses, but did not fully address non-compliance involving domestic sellers.
Its concern is not simply that a business may miss a deadline. The consultation identifies several patterns it wants to tackle: overseas sellers presenting themselves as UK-established; UK businesses splitting activity across marketplaces or accounts to appear below the VAT registration threshold; and registered businesses charging VAT or reclaiming input tax but not paying the correct amount to HMRC.
For compliant microbusinesses, this is the fairness argument. If one seller has built VAT into its price, maintained records and submitted returns while a competitor does not, the competitor may appear cheaper even where both sell a comparable item. The government argues that shifting more collection responsibility to marketplaces could make that harder and help level the playing field between online sellers and high-street businesses.
That objective will resonate with many entrepreneurs. But the policy could also create friction for legitimate businesses that are small, below the registration threshold or operating across several channels. That is why the consultation includes potential safeguards rather than a single finished model.
The minimum platform threshold: the key proposal for smaller sellers
The most significant option is a Minimum Platform Threshold, or MPT. This would decide when a marketplace becomes liable to account for VAT on a UK seller’s sales made through that particular platform.
The government’s lead proposal is an MPT of £90,000, matching the current UK VAT registration threshold for taxable supplies. On that model, a marketplace would account for VAT only where a UK business’s total sales through that individual platform exceeded £90,000. The current VAT registration threshold remains £90,000, as confirmed in HMRC’s VAT registration threshold guidance.
There is a crucial catch: an MPT would not replace the ordinary VAT registration rules. VAT registration is based on a business’s relevant total taxable turnover, not merely sales on one app or marketplace. A seller could make £50,000 through Marketplace A, £30,000 through Marketplace B and £20,000 through their own website. Each marketplace total may be below £90,000, but the business should still assess its overall VAT-registration position.
Why a per-platform test could be both helpful and awkward
A £90,000 MPT could shelter many genuinely small sellers from an immediate marketplace VAT collection change. It may be particularly relevant to a sole trader testing a product line at weekends, an immigrant entrepreneur building a new customer base, or a shift worker running a food, craft or retail venture around unpredictable hours.
However, a per-platform threshold can create uneven outcomes. Two businesses with the same overall turnover could be treated differently if one concentrates sales on a single marketplace and the other divides them between several platforms, direct sales and a physical outlet. The government explicitly recognises that online and offline sales mixes could affect businesses differently.
The consultation therefore also asks about a lower MPT. Ministers say that a lower figure could keep most non-VAT-registered businesses outside the policy while making it more difficult for non-compliant sellers to avoid VAT through account or platform splitting. No lower amount has been selected in the consultation. Sellers should treat it as an option under discussion, not a confirmed threshold.
Could VAT rate relief protect businesses below the threshold?
The second main mitigation is a potential VAT rate relief for UK businesses below the VAT registration threshold. The idea is that, if a marketplace accounts for VAT on a small seller’s sales, a relief could soften the commercial impact for that seller.
This matters because a seller below the threshold may have built pricing on the assumption that it does not need to add VAT to customer sales. If a marketplace starts accounting for VAT at the relevant rate, the seller may have difficult choices: absorb the effect in its margin, raise retail prices, alter the product mix, or voluntarily register for VAT and potentially recover input tax under normal rules.
Rate relief could make the transition less severe for businesses that do not want the administration of voluntary VAT registration. Yet it would introduce its own questions. Platforms would need reliable information about a seller’s UK establishment, business status and eligibility. The government also warns that relief might not solve the problem of overseas businesses falsely claiming to be UK-based, and could create further compliance risks.
For a small business owner, the lesson is not to assume that relief would make the policy cost-neutral. The rate, eligibility rules, evidence requirements and interaction with voluntary registration have not been settled. The consultation is asking businesses how such a scheme would affect them and what administrative burden it could create.
Who may be affected — and who may not
The scope is broader than a stereotypical online retailer. The consultation specifically names marketplaces used for takeaway food delivery, as well as restaurants, kitchens and takeaway outlets that sell through them. Platforms that mainly host UK businesses may face a bigger systems change than platforms already administering VAT liability for many overseas sellers.
It may also affect sellers of new goods on retail marketplaces, businesses using multiple marketplace accounts, and VAT-registered firms that sell both through platforms and directly from their own website or premises. A seller who buys stock, imports products, runs a pop-up stall and sells online may need to track several VAT treatments at once.
By contrast, sales by people who are not in business are not intended to be in scope. The consultation gives examples such as individuals selling unwanted second-hand clothes, collectables or household goods. But regular, organised selling for a business income is different from occasional private decluttering. If your activity is persistent, commercial and profit-seeking, do not rely on a “private seller” label without taking appropriate advice.
Second-hand businesses need to watch this closely
The government is also considering special treatment for second-hand goods sold by businesses. VAT-registered businesses can in some circumstances use the Second-hand Margin Scheme, under which VAT is charged on the margin rather than the entire selling price. The consultation says a simple extension of marketplace liability could create problems because a marketplace may otherwise apply VAT to the full sale price.
Possible answers include excluding business sales of second-hand goods from the extended marketplace rules, or changing access to the margin scheme. Neither approach is final. Resellers, vintage businesses, refurbished-goods traders and charities with commercial trading operations should pay close attention and explain real-world margin pressures in a consultation response.
What changes for VAT-registered sellers?
For a VAT-registered business, the proposal could reduce one element of VAT accounting for qualifying marketplace sales, but it would not make VAT administration disappear. Direct website sales, shop sales and other transactions would still follow their usual VAT treatment. Businesses would still need to recover eligible input tax, maintain VAT records and submit accurate returns.
The biggest operational shift may be cash flow. Today, a VAT-registered seller may receive the customer payment, hold the VAT element temporarily and later account for it through its VAT return. Under the proposed model, the marketplace would collect and account for the VAT on the consumer sale. That could change settlement amounts and the timing of cash reaching the seller.
Businesses using the Flat Rate Scheme should be particularly careful. HMRC’s existing marketplace guidance says sales where the marketplace is liable to account for VAT are not included in the Flat Rate Scheme calculation. The consultation specifically asks how an extension could affect businesses using the scheme. Do not assume your current percentage or reporting method will remain commercially attractive if marketplace sales become treated differently.
Why you should keep VAT records marketplace by marketplace
Whether or not the reform proceeds, marketplace-by-marketplace records are now essential business hygiene. They will help you monitor the MPT if it is introduced, assess whether you are approaching the normal VAT threshold, reconcile platform settlements and explain figures to an accountant or HMRC.
HMRC already requires VAT-registered businesses to keep records of what they buy and sell, invoices issued and received, and other supporting documents; many VAT records must be kept digitally unless an exemption applies. See HMRC’s VAT record-keeping guidance for the baseline requirements. The proposed reform makes it sensible to organise that information with more detail than a single “online sales” line in a spreadsheet.
A practical marketplace VAT record checklist
Create a monthly report for every marketplace and keep it separate from direct web, telephone, social-media and in-person sales. Your report should allow you to see the commercial sale and the VAT treatment without relying solely on a platform dashboard that may later change.
- Platform name and account: record the marketplace and the legal entity or trading account that made the sale.
- Gross sales: keep the customer-facing selling price before marketplace fees, refunds and deductions.
- Tax point and settlement date: these are not always the same, and both can matter for reconciliation and cash planning.
- VAT status: identify whether the sale was standard-rated, reduced-rated, zero-rated, exempt, outside scope, or accounted for by another party where applicable.
- Marketplace VAT data: retain platform statements showing VAT charged, VAT withheld or accounted for, commissions, delivery charges, adjustments and payout amounts.
- Returns and cancellations: link each refund or credit to the original order so revenue and VAT are not overstated.
- Stock and product evidence: keep product descriptions, purchase invoices and records supporting whether goods are new, second-hand, imported or held in the UK at the point of sale.
- Channel totals: maintain a rolling total for each marketplace and a separate total for the whole business.
This approach is valuable even for a business below the VAT threshold. It can reveal when a side business has become a VAT-registration issue, prevent accidental double-counting of sales, and make a future platform onboarding request far less stressful.
Three practical scenarios
A VAT-registered retailer selling through one marketplace
Imagine a homewares business that is VAT registered and sells mainly through one large marketplace, with some sales through its own website. Under the proposed model, the marketplace may account for VAT on qualifying business-to-consumer platform sales, while the retailer continues accounting for VAT on website sales. The retailer needs separate reporting so its VAT return does not include output VAT twice, and so it can still support input-tax claims on stock, packaging and other eligible costs.
A food business operating on delivery apps
A takeaway may take orders through two delivery platforms, its own website and the counter. If it is VAT registered, it should not assume that every order has the same accounting treatment after any reform. It needs a clear daily split by channel, with sales, fees, refunds and payouts reconciled. If its menu includes items with different VAT liabilities, accurate product mapping becomes even more important.
A growing seller below the VAT threshold
Consider a sole trader selling handmade products through two marketplaces while working night shifts. The business may currently be below the £90,000 VAT threshold. A £90,000 MPT per marketplace might initially leave its sales outside the new collection mechanism, but a lower MPT or a rate-relief model could affect it differently. More importantly, total sales across both platforms and any direct sales still need monitoring for ordinary VAT-registration purposes.
What sellers should do before the consultation closes
The consultation closes on 18 August 2026. This is an opportunity for small businesses to provide evidence before the government decides whether and how to proceed. You do not need a polished legal submission to make a useful contribution. Clear operational evidence is valuable.
- Calculate sales by marketplace for the past 12 months and compare them with total taxable turnover.
- Ask each marketplace what VAT data it currently provides in downloadable reports and whether it can distinguish tax treatment, refunds and fees clearly.
- Model the impact of VAT being accounted for by the marketplace on your price, margin and payout timing.
- If you are below the VAT threshold, compare the likely effect of absorbing VAT, increasing prices and voluntary VAT registration with professional advice.
- If you sell second-hand goods or use the Flat Rate Scheme, identify the specific impact on your margin and administration.
- Respond through the government’s consultation page or ask your trade body, accountant or adviser to raise your sector’s concerns.
Conclusion: prepare for a different VAT relationship with platforms
Marketplace VAT reform is still a proposal, and the final design could change after consultation. But the direction of travel is clear: the government wants platforms to play a larger role in VAT collection for sales they facilitate for UK businesses.
For compliant sellers, the reform could strengthen fairer competition. For small and growing businesses, it could also create new questions about thresholds, margins, registration decisions, settlements and reporting. The most useful action now is to build clean marketplace-by-marketplace records, understand where every sale sits, and speak up with evidence before 18 August 2026. Treat this consultation as a planning signal, not a problem to solve later.
