Tax for Gumroad Sellers: A UK Guide

Tax for Gumroad sellers can involve more than simply declaring the income received from the platform. This is particularly true where a business is VAT registered, approaching the VAT registration threshold or also sells directly to customers.

Since 1 January 2025, Gumroad has operated as Merchant of Record for sales made through its platform. This matters because Gumroad is not simply processing a payment on behalf of the creator. Under the current arrangements, Gumroad acts as the seller to the end customer. It also assumes responsibility for applicable VAT and other indirect taxes on that customer transaction.

For a UK creator, this changes the VAT analysis. Rather than automatically treating each Gumroad customer as your customer for VAT purposes, you need to identify the supply made to Gumroad. You then need to establish where that supply takes place and whether it forms part of your UK taxable turnover.

This guide explains these issues in more detail. It covers Gumroad's Merchant of Record model, the UK VAT registration threshold, direct sales and sales made before Gumroad adopted its current model. It also considers how businesses should reflect the transactions in their accounting records.

Why Gumroad’s Merchant of Record model matters for UK VAT

The VAT treatment of Gumroad sales depends on understanding who is actually making the supply to the end customer.

With a conventional payment processor, the creator will usually remain the seller. The payment provider simply facilitates the collection of the customer’s money and does not normally become the supplier of the underlying product or service.

Gumroad’s current Merchant of Record model operates differently. Gumroad acts as the seller to the end customer and takes responsibility for the indirect tax obligations arising on that retail transaction, including calculating, collecting and remitting VAT where required.

The distinction can be illustrated as follows:

This distinction is particularly important when reviewing the UK VAT registration threshold.

For example, if a Gumroad dashboard shows £100,000 of customer purchases, that does not automatically mean the UK creator has made £100,000 of UK taxable retail sales.

The creator’s VAT position must instead be determined by identifying the supply being made to Gumroad, establishing where that supply takes place for VAT purposes and considering whether it forms part of the creator’s UK taxable turnover.

This is why Gumroad sales should not simply be treated in the same way as sales processed through a conventional payment provider.

Merchant of Record Arrangements: UK VAT and Direct Tax Are Separate Considerations

It is important to distinguish between the VAT treatment of transactions made through Gumroad and the UK taxation of the creator’s underlying business profits.

Gumroad's Merchant of Record role can change the contractual supply chain and determine who accounts for VAT on the customer sale. It does not determine whether the creator's profits are taxable in the UK.

For a UK-resident sole trader, profits from the creator business will generally form part of their taxable trading profits and be subject to Income Tax and National Insurance.

A UK limited company will generally pay Corporation Tax on its taxable profits, including profits arising from supplies made through a Merchant of Record arrangement.

A creator's supply to Gumroad could therefore fall outside the scope of UK VAT under the relevant place-of-supply rules. The profit from the same commercial activity can still remain within the UK direct tax regime.

So, statements such as “Gumroad deals with the VAT” should not be taken to mean that Gumroad income is exempt from UK tax. VAT and direct taxation are separate issues.

Merchant of Record Arrangements and the UK VAT Registration Threshold

Whether income generated through Gumroad contributes towards the £90,000 UK VAT registration threshold depends on the VAT treatment of the supplies made by the creator. It cannot necessarily be determined simply by reference to the gross value of sales processed through the platform

Compulsory VAT registration generally depends on a person's UK taxable turnover. Taxable turnover broadly includes supplies that would be taxable for UK VAT purposes, including zero-rated supplies. This is not necessarily the same as accounting revenue, gross Gumroad sales or the net amount paid to the creator.

Where Gumroad acts as Merchant of Record and principal in the transaction, start by identifying the actual supplies. The creator may make a supply to Gumroad, with Gumroad then making a separate supply to the end customer.

The VAT treatment of the creator-to-Gumroad supply then depends on matters including the nature of that supply, the status and location of the relevant Gumroad entity and the applicable place-of-supply rules.

How the place-of-supply rules affect taxable turnover

Where the creator supplies services to Gumroad and the general B2B rule applies, the place of supply will normally be where Gumroad belongs. If the relevant Gumroad entity belongs outside the UK, and no exception applies, the supply may therefore fall outside the scope of UK VAT.

If the supply falls outside the scope of UK VAT because its place of supply is outside the UK, it would not normally count towards the creator's UK taxable turnover.

This can produce a materially different result from simply taking the gross value of customer purchases shown by Gumroad and comparing that figure with the £90,000 threshold. The amount processed by Gumroad is not necessarily the amount that represents the creator's UK taxable turnover.

However, there is no general rule that “Gumroad income does not count towards the VAT threshold”. The correct treatment depends on the arrangements in place at the time.

You need to establish which Gumroad entity contracts with the creator and where that entity belongs for VAT purposes. You must also consider the nature of the creator's supply, Gumroad's contractual role and whether a specific place-of-supply rule overrides the general B2B rule.

The creator's wider business activities must also be considered. A creator may have supplies through Gumroad that do not form part of UK taxable turnover while simultaneously making direct UK sales, supplying UK business customers or carrying on other activities that do constitute taxable supplies. Those supplies may still cause the £90,000 registration threshold to be exceeded.

Accordingly, the VAT registration position should be determined by analysing the creator's individual supplies and overall UK taxable turnover, rather than by treating either total Gumroad sales or total business income as synonymous with turnover for VAT registration purposes.

Why £150,000 of revenue may not mean £150,000 of UK taxable turnover

Consider a UK content creator with the following annual revenue:

At first sight, £150,000 of revenue might suggest that the VAT registration threshold has been exceeded. However, VAT registration is based on UK taxable turnover, not simply total business revenue.

Where Gumroad acts as Merchant of Record, the creator needs to consider their supply to Gumroad separately. If that supply is outside the scope of UK VAT under the applicable place-of-supply rules, the £120,000 would not normally count towards the UK VAT registration threshold.

Assuming the £20,000 of direct UK sales and £10,000 of UK consultancy work are taxable UK supplies, the position could therefore be:

The creator could therefore generate £150,000 of revenue while only £30,000 counts towards the UK VAT registration threshold.

This is why creators should not rely solely on their accounts or platform sales figures when assessing whether VAT registration is required.

Why direct sales can have a different VAT treatment

The VAT position can change when a creator sells the same product both through Gumroad and directly to customers.

For example, a UK creator might sell a digital course for £100. Through Gumroad's Merchant of Record model, the customer may buy from Gumroad. The creator then makes a separate supply to the platform. If the course is sold through the creator's own checkout, the creator will usually be making the supply directly to the customer.

The product and price may be identical, but the VAT supply chain is different.

For direct sales, the creator must determine where the customer belongs and whether they are a business or consumer, then apply the appropriate place-of-supply rules. This is particularly important for electronically supplied services, where B2B and B2C sales can produce different VAT outcomes.

Moving from Gumroad to a direct checkout can therefore change the VAT treatment even though the underlying product has not changed.

For VAT purposes, creators should analyse revenue by sales channel, customer and contractual relationship, rather than treating all platform and direct sales as a single turnover figure.

Gumroad is not the same as a payment processor

Using Gumroad is not necessarily the same as selling through your own website and using a payment processor such as Stripe or PayPal.

With a payment processor, the provider may simply collect the customer's payment on the creator's behalf. The creator remains the supplier of the digital product or service and must determine the VAT treatment of the sale.

Under Gumroad's Merchant of Record model, Gumroad instead acts as the seller to the end customer. The creator must therefore consider their supply to Gumroad separately from Gumroad's onward sale.

For VAT purposes, who is acting as principal and who is acting as agent can be more important than which business actually processes the payment. HMRC explains this distinction in its guidance on VAT: agents and principals.

This is why the contractual terms of a platform matter. Two platforms that appear to provide similar services can produce different VAT outcomes if their roles in the supply chain are different.

Historic Gumroad sales need to be reviewed separately

Gumroad's current Merchant of Record arrangements should not automatically be applied to earlier sales.

Gumroad states that it became Merchant of Record for transactions from 1 January 2025. A creator reviewing their historic VAT position should therefore consider sales before and after that date separately. The contractual arrangements in force at the time will determine the treatment.

This matters because the UK VAT registration threshold operates on a rolling 12-month basis, rather than by tax year or accounting period. A historic review may therefore require a month-by-month analysis to establish whether and when the business exceeded the applicable threshold.

Creators should also retain evidence of the platform terms that applied to their transactions. Online terms can change, and the version available today may not demonstrate the contractual relationship that existed several years ago.

This is particularly important where the VAT treatment depends on whether a platform was acting as principal, agent, reseller or simply a payment facilitator. Accounting records may establish the value of the transactions, but not necessarily their nature for VAT purposes.

For creators with a long history of Gumroad sales, 1 January 2025 can therefore be an important dividing line in a retrospective VAT review.

Foreign currency can create additional differences

International Gumroad businesses may make sales and receive settlements in currencies other than sterling. For UK VAT purposes, relevant foreign currency transactions must be converted into sterling using an acceptable exchange rate.

Where the transaction and subsequent payout occur at different times, the sterling value of the sale may differ from the amount eventually received. A consistent exchange-rate methodology and reconciliation process is therefore important.

This is another reason not to prepare the accounts solely from the bank feed. The bank records the cash received, but may not provide the information needed to establish the underlying transaction and its correct sterling value.

Selling through Gumroad alongside other platforms

Many creator businesses earn income from several sources, including Gumroad, direct website sales, other platforms, sponsorships, affiliate income, memberships and consultancy.

For VAT purposes, these income streams should not automatically be treated in the same way. The contractual relationship and supply chain may differ between platforms and between direct and platform sales.

The appropriate approach is to identify the material revenue streams and establish who supplies what to whom and where the supply takes place. You can then apply HMRC's place-of-supply rules to determine whether the supply falls within UK VAT and counts towards UK taxable turnover.

This is particularly important where total business revenue exceeds £90,000 but only some of that revenue may count towards the VAT registration threshold.

What if the Gumroad seller is already VAT registered?

VAT registration does not mean that UK VAT automatically applies to every item of business income. A VAT-registered creator must still determine the place of supply and VAT liability of each relevant transaction.

If a creator's supply to Gumroad is outside the scope of UK VAT under the applicable place-of-supply rules, being VAT registered does not change that treatment.

A VAT-registered business may also be able to recover VAT on qualifying business expenditure, subject to the normal input tax recovery rules.

The VAT return should therefore reflect the nature of the underlying supplies, rather than simply applying VAT to the total income shown in the accounts.

The Income Tax and Corporation Tax position

The VAT treatment should not be confused with the direct tax position.

For a sole trader, profits from a Gumroad trade will normally form part of their taxable trading income. Where the business operates through a UK limited company, its taxable profits will generally be subject to Corporation Tax.

Business costs such as platform fees, software, hosting, advertising and professional fees may qualify for tax relief. Different rules can apply to capital expenditure, private costs and specifically disallowed expenditure.

The key distinction is that a Merchant of Record arrangement can change the VAT treatment of a transaction without removing the underlying business profit from UK taxation.

When should a Gumroad business carry out a VAT review?

A VAT review is particularly worthwhile where total business revenue is approaching or exceeds £90,000, or where Gumroad sales have grown significantly. It can also be useful where the creator combines platform and direct sales, uses several platforms, or traded through Gumroad both before and after 1 January 2025.

A current review should identify the material revenue streams and determine the VAT treatment of each.

For historic periods, the business may need to reconstruct turnover month by month. Compulsory VAT registration uses taxable turnover over a rolling 12-month period. A monthly review can therefore establish whether the business exceeded the threshold and when any registration obligation arose.

Simply comparing annual accounting turnover with the VAT threshold may give the wrong answer.

Getting the VAT position right

Gumroad's Merchant of Record model can make the UK VAT position less straightforward than the headline sales figures suggest. For an established creator business, three questions are particularly important: what is being supplied, who is making the supply and whether the income counts towards UK taxable turnover.

This becomes particularly important where revenue is approaching or exceeds the VAT registration threshold, where direct and platform sales are combined, or where the business has traded through Gumroad both before and after 1 January 2025.

For a broader look at VAT on platform income, digital products and international sales, see our VAT for Content Creators guide.

At The Friendly Accountants, we regularly advise content creators on the tax and VAT issues that arise from platform income, direct sales and other online revenue streams. You can find more information about these areas on our Content Creator Accountants page.

If your creator business is growing and you would like to discuss how we could help your business, complete our Business Questionnaire and a member of our team will be in touch.