UK Online Marketplaces: Is VAT liability about to shift?
The UK Government is proposing a significant expansion of the VAT rules for online marketplaces, shifting responsibility for VAT collection from certain UK sellers to the platforms through which they sell.
The proposal, published by HMRC in June 2026, is aimed at tackling non- VAT compliance and creating a more level playing field between compliant businesses and those failing to meet their VAT obligations. The consultation closed on the 18th of August 2026, but no changes have yet been implemented.
Extending the marketplace VAT rules
Since 2021, UK online marketplaces have been required to account for VAT on certain B2C sales of goods where they facilitate sales of low-value imports valued at £135 or less and where goods are already in the UK at the point of sale by an overseas business.
HMRC now plans to take this a step further.
Under the proposed rules, marketplaces would also become responsible for accounting for VAT on B2C sales of goods made by UK businesses where the goods are located in the UK at the point of sale. This includes retail goods and takeaways or delivered food.
The proposal could therefore affect traditional e-commerce marketplaces alongside online takeaway and food delivery platforms such as Deliveroo and Just Eat, depending on whether the platform falls within the proposed definition of an online marketplace.
Under this proposed model, rather than the UK seller accounting for VAT on the consumer sale, the marketplace would collect and account for the VAT.
For UK VAT-registered sellers, the proposed treatment would involve a deemed zero-rated supply from the seller to the marketplace, with the marketplace accounting for VAT on the subsequent sale to the final consumer.
Why is HMRC planning this change?
The answer is loss of Revenue due to lack of compliance.
HMRC estimates that tens of thousands of UK businesses trading through online marketplaces may not be meeting their VAT obligations, potentially costing the Exchequer hundreds of millions of pounds each year.
The UK Government is particularly concerned about businesses spreading sales across different marketplaces or markets to remain below the VAT registration threshold, as well as businesses that register for VAT, recover input VAT and charge output VAT but subsequently fail to report the VAT due to HMRC.
The Government’s view is that placing responsibility on the marketplace could make this type of non-compliance significantly harder and help create a more level playing field between compliant and non-compliant businesses, both online and on the high street.
The £90,000 question
One of the biggest issues is how the new rules would affect smaller businesses that are not required to register for VAT.
The Government’s lead proposal is to introduce a Minimum Platform Threshold (MPT). Under this approach, a marketplace would only become liable for VAT on sales by a UK business once that business’s sales through the individual platform exceed a specified threshold.
The consultation proposes £90,000 as the lead MPT, broadly aligning it with the current UK VAT registration threshold. This would mean that, where a business’s sales through an individual marketplace remain below £90,000, the marketplace would generally not be required to account for VAT on those sales under the proposed rules.
Importantly, the MPT would not replace the existing VAT registration threshold. A business would still need to consider its total taxable turnover across all sales, including sales made through different marketplaces and other channels. If its total taxable turnover exceeds the statutory VAT registration threshold, the business would still be required to register for VAT.
The Government is also considering a lower threshold to address businesses deliberately distributing sales across multiple platforms to remain below the threshold. This is intended to prevent businesses from avoiding the marketplace VAT rules simply by spreading their sales across different platforms.
Implications for marketplaces and sellers
The proposed changes could require marketplaces to make significant changes to their existing processes.
The marketplace may need to establish where the seller is established, the value of sales made through the platform and where the goods are located at the point of sale.
This could have implications for seller onboarding, due diligence, data collection, payment processes and invoicing and VAT reporting.
Marketplaces that already operate the existing VAT rules for overseas sellers may be able to build on systems and processes already in place. However, platforms that primarily facilitate sales by UK businesses could face more significant changes.
The proposals also raise specific issues for second-hand goods.
UK businesses selling eligible second-hand goods may use the Second-hand Margin Scheme, under which VAT is calculated on the profit margin rather than the full selling price. However, the existing marketplace rules do not allow the marketplace to apply the margin scheme.
If the proposed rules were introduced without specific provisions for second-hand goods, VAT could potentially be accounted for on the full selling price rather than the seller’s margin.
The Government is therefore considering whether second-hand goods sold by businesses should be excluded from the extended marketplace liability rules.
For UK businesses selling through marketplaces, the main practical change would be that VAT on qualifying sales would be collected and accounted for by the marketplace rather than the seller. This could also have cash flow implications, as the seller would no longer collect the VAT on these sales before accounting for it through its own VAT return.
What happens next?
The consultation closed on 18th August 2026 and HMRC will now consider the responses received.
If the Government decides to proceed, HMRC has indicated that it will publish a further technical consultation on draft legislation before the new rules are introduced.
For now, there is no change to the existing VAT rules.
However, the proposal represents a significant potential expansion of the role of online marketplaces in the UK’s VAT system. If implemented, marketplaces would take on responsibility for accounting for VAT on a wider range of transactions, while UK businesses selling through those platforms would need to understand how the changes affect their VAT reporting, pricing and cash flow.
The next stage of the consultation process will therefore be important in determining exactly how the proposed rules will operate in practice.
If your business operates an online marketplace or sells goods through an online marketplace in the UK and you require support in understanding the proposed VAT reforms and their potential impact on your business, please do not hesitate to get in touch. One of our experienced consultants will be happy to advise you.