The government has launched a major consultation that could alter the landscape of online selling across the UK. The proposed online marketplace VAT reform would place greater responsibility on online marketplaces to collect and account for VAT. If adopted, these changes could affect thousands of UK businesses that sell through platforms such as Amazon, eBay, Etsy, Deliveroo and Uber Eats.
Overview
The government believes the reforms will create a fairer trading environment. At present, many compliant businesses are competing against sellers who fail to pay the correct VAT. Consequently, those businesses often lose out to competitors that undercut their prices through tax non-compliance.
The consultation remains open until 18 August 2026. Therefore, businesses, advisers and online marketplaces all have an opportunity to influence the final rules.
Why is the government introducing online marketplace VAT reform?
Online marketplaces already carry VAT responsibilities in certain situations involving overseas sellers and so to ensure compliance.
However, HMRC believes that significant VAT losses continue to arise from UK businesses and overseas sellers that fail to comply with existing legislation. According to the consultation, HMRC has identified a number of recurring problems. These include:
HMRC is of the opinion that these practices create an unfair advantage for those businesses that ignore their tax obligations. As a result, compliant businesses often struggle to compete on price.
What could change?
The proposed online marketplace VAT reform would significantly extend th0se situations where online marketplaces become responsible for collecting the VAT due.
Instead of relying entirely on individual sellers, marketplaces could become liable for VAT on qualifying sales they facilitate. The proposals currently cover
Importantly, these proposals build on the marketplace VAT rules introduced in 2021 for certain overseas sellers.
What does the government hope to achieve?
The government wants online marketplace VAT reform to achieve several important objectives. These include:
Therefore, the proposals aim to strengthen enforcement without creating unnecessary administrative burdens.
Two possible approaches
The consultation explores two possible models.
Minimum Platform Threshold
Under this option, an online marketplace would only become responsible for VAT once a UK business exceeded a sales threshold on that platform.
The government proposes a threshold of £90,000. However, it also seeks views on whether a lower threshold would prove more effective. This approach aims to protect genuinely small traders whilst targeting larger businesses.
VAT relief for smaller businesses
Alternatively, the government could introduce some form of VAT relief for those UK businesses below the VAT registration threshold.
This relief could reduce the impact of the reforms on smaller businesses that prefer to remain outside the VAT system. Consequently, smaller businesses could continue trading without facing unnecessary administrative costs. In other words those who do not want to be VAT registered.
Which businesses could be affected?
If these proposals become law, many businesses could experience significant changes.
Potentially affected businesses include:
Private individuals selling unwanted personal belongings should remain outside these proposals, provided they are not trading as a business.
What should businesses do now?
Although the rules have not changed yet, preparation remains essential. Now is an ideal time to review your VAT position and ensure your records remain accurate. You should consider:
Summary
The proposed online marketplace VAT reform represents one of the most significant changes to online VAT compliance in recent years.
Whilst the consultation focuses on tackling VAT evasion, compliant businesses should pay close attention. These final rules could transfer VAT obligations from individual sellers to online marketplaces.
If your business sells through digital platforms, now is the ideal time to review your VAT arrangements. Careful planning today could help you avoid costly issues at a later date.
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