Online marketplaces have become a vital route to market for thousands of UK businesses. Whether selling through Amazon, eBay, Etsy or specialist platforms, many retailers rely on these digital channels to reach customers across the country and beyond.
However, proposed changes to VAT rules could mean online marketplaces take on greater responsibility for collecting and paying VAT on behalf of UK sellers, potentially creating one of the most significant changes to online retail tax compliance in recent years.
The government introduced online marketplace (OMP) VAT rules in 2021, making platforms responsible for accounting for VAT on certain sales made in the UK by overseas sellers.
The policy was designed to tackle tax losses arising from overseas businesses that failed to register for VAT or underpaid tax on UK sales. According to HMRC, the rules have been largely successful.
However, concerns remain about VAT non-compliance within the online marketplace sector. Issues identified by the government include overseas sellers presenting themselves as UK businesses, traders using multiple platforms to remain below the VAT registration threshold, and some businesses engaging in deliberate VAT fraud.
As a result, a consultation that closed in August 2026 explored whether the existing rules should be extended to cover certain sales by UK-based sellers.
Under the lead proposal, online marketplaces would become responsible for accounting for VAT on sales made through their platforms by UK businesses above a specified threshold.
The consultation suggests a threshold of £90,000 per platform, mirroring the current VAT registration threshold.
In practice, this could mean that once a business exceeds the threshold on a marketplace, the marketplace itself would collect and account for VAT rather than relying on the seller to do so. However, the proposed marketplace threshold would be separate from the existing VAT registration test, which considers a business's total taxable turnover across its sales channels.
The proposals would apply to business-to-consumer (B2C) sales and would not extend to business-to-business transactions. Private individuals who occasionally sell second-hand goods online would also remain outside the scope of the rules.
From a policy perspective, extending the rules may be viewed as a relatively straightforward way to improve VAT compliance.
The framework already exists for overseas sellers, meaning HMRC would not need to develop an entirely new system. Instead, it would be expanding an approach that is already operational and familiar to the major online marketplaces.
The government continues to face pressure to tackle tax leakage and improve tax collection without increasing headline tax rates. Strengthening compliance measures can therefore be an attractive option.
For this reason, tax professionals will be watching closely to see what the government decides following the consultation and whether further detail is announced in the Autumn Budget.
One of the key difficulties is how the rules would apply to smaller UK businesses.
Unlike UK businesses, overseas sellers making taxable supplies in the UK are required to register for VAT regardless of the value of those sales.
For domestic traders, however, the £90,000 threshold plays an important role in reducing administrative burdens on smaller businesses.
Any extension of the online marketplace rules would therefore need to balance improved compliance with ensuring genuinely small businesses are not unfairly affected.
The consultation acknowledges this challenge and suggests that some form of VAT relief mechanism could be considered, although no detailed proposal has yet been put forward.
The consultation has closed, but no final policy has yet been confirmed, so businesses that sell through online marketplaces should keep developments under review.
For many businesses, the changes may ultimately simplify aspects of VAT administration. However, any reforms could also affect pricing, cash flow, systems and reporting processes.
Businesses that rely heavily on marketplace sales should ensure they understand how VAT is currently being treated across different platforms and consider seeking advice if future changes are announced.
VAT rules continue to evolve as the government responds to changing business models and advances in technology. Whether you sell through online marketplaces, operate across multiple platforms or need support with VAT compliance, get in touch or contact your usual Duncan & Toplis adviser to help you understand your obligations.
