Marketplace VAT from October 2027

A major change is happening to the way ecommerce businesses account for VAT. In October 2027, Amazon, eBay and other online marketplaces will begin deducting VAT from UK sellers' sales and paying it directly to HMRC on their behalf.

The detail is in HMRC's policy paper, published alongside the Budget on 28 October 2026. It applies to every VAT registered UK seller, however much they sell on the platform, and to any seller who isn't VAT registered but sells more than £90,000 a year on a single marketplace. HMRC expects around 100,000 businesses to be affected.

The short version

• What changes: the marketplace deducts the VAT from your sales before paying you, and sends it straight to HMRC instead.
• When: October 2027. HMRC guidance and the detailed rules will follow before then.
• Who is affected: UK sellers who are VAT registered, plus unregistered sellers with more than £90,000 of sales on one marketplace.
• What isn't covered: second-hand goods, sales to other businesses and sales through your own website.
• The main effect: less cash in your payouts, and VAT refunds from HMRC instead of VAT bills for most sellers.
• Do this now: check the VAT rate set on every SKU in your marketplace accounts. From October 2027, the marketplace will deduct VAT based on those settings.

Why the change is happening

HMRC says some overseas sellers get round the current rules by claiming to be UK based, and that some UK businesses fail to register for VAT or under-declare it. It estimates that tens of thousands of businesses selling through marketplaces aren't meeting their VAT obligations. The government says the money raised will help fund business rates cuts for physical shops.

How it works today

At the moment, a VAT registered seller on Amazon or eBay deals with their own VAT.

Let's say a customer buys a product on Amazon for £18, and £3 of that is VAT. Amazon collects the £18, deducts its selling and FBA fees and then pays the balance to the seller (eventually! As we know, Amazon pays out around every two weeks, and under its DD+7 policy, which needs an Amazon seller account to view, the money from each order isn't released until seven days after it reaches the customer).

The seller keeps the VAT collected from the customer in the bank until their next VAT return. When preparing the return, they add up all the VAT they've collected on sales (output VAT), deduct the VAT they've paid to suppliers on their costs (input VAT) and pay HMRC the balance.

What changes from October 2027

UK sellers move to the system overseas sellers have been on since January 2021. Using the same £18 sale, Amazon keeps the £3 of VAT, pays it directly to HMRC and pays you the rest, less its fees. You no longer pay the VAT on those sales to HMRC yourself.

The marketplace deducts VAT at the rate set for each product in your account: 20% on most goods, 5% on a few such as children's car seats, and nothing on zero-rated goods such as books and children's clothing.

After the change, UK and overseas sellers are treated in largely the same way. The one difference is the threshold: overseas sellers are caught from their first sale, but a UK seller who isn't VAT registered has a threshold of £90,000 before they must register.

You'll still file VAT returns and still reclaim the VAT on your business costs. With no VAT on your marketplace sales to set those costs against, most sellers will end up claiming a refund from HMRC each quarter instead of making a payment.

HMRC's June consultation proposed treating your sale to the marketplace as zero-rated (0% VAT), which is how the rules already work for overseas sellers. The Budget paper doesn't confirm this, and HMRC guidance will set out the exact accounting before October 2027. The example below uses the consultation model.

Your VAT return before and after

Take a VAT registered seller with £120,000 of sales on Amazon in a year, all at the standard 20% rate, so £100,000 of sales plus £20,000 of VAT. Their business costs are £40,000 plus £8,000 of VAT. Over a year, the main VAT return boxes look like this.

HMRC ends up with the same £12,000 under the old and new rules. The difference is who pays it and when.

Today the seller has the £20,000 in the bank for weeks or months before the return is due. From October 2027 Amazon takes it at the point of sale, and the seller waits for HMRC to refund the £8,000.

Who is caught

VAT registered sellers: every sale of new goods to a consumer through a marketplace is covered, whether you sell £5,000 or £500,000 on that platform.

Sellers who aren't VAT registered: the marketplace only collects VAT if your sales on that platform are more than £90,000 a year. Each platform is measured separately.

That second rule gives little protection to anyone selling on more than one platform. Say you aren't registered and sell £70,000 on Amazon and £70,000 on eBay. Neither marketplace has to collect VAT for you, because you're under £90,000 on each.

However, in this scenario your total sales are £140,000, which is over the £90,000 VAT registration threshold, so you have to register for VAT regardless. On our reading of the rules, the moment you register, Amazon and eBay will start collecting VAT on your sales.

If you aren't registered, add up the last 12 months of sales across every platform. Amazon's Date Range Reports and eBay's Seller Hub performance reports give the figures. Over £90,000 in total means you need to register now, whatever the new rules say.

Marketplaces report seller data to HMRC every January, and registering before HMRC matches that data to you costs less than being found.

What isn't covered

• Second-hand goods: this includes clearing out your own belongings. HMRC will set out the details on this in secondary legislation.
• Sales to other businesses: where a business customer buys through a marketplace (on Amazon Business, for example) and gives its UK VAT number, the marketplace doesn't collect the VAT and you account for it yourself as you would currently. This mirrors how the rules work for overseas sellers today. Your VAT return will need to separate the two, and getting that split wrong means paying VAT twice or not at all.
• Your own website: sales through a Shopify store or similar carry on as usual. You charge the VAT and pay it to HMRC yourself.

Flat Rate Scheme users

The Flat Rate Scheme lets smaller businesses pay HMRC a fixed percentage of their sales instead of working out VAT on sales minus VAT on costs. We think Flat Rate Scheme users are at risk from this change, and we're watching it closely.

The Budget paper doesn't say how the scheme will work with the new rules. If nothing changes, a seller on the scheme would pay their flat rate percentage on marketplace sales where the marketplace has already paid the VAT.

Unless HMRC announces special rules for the scheme, our recommendation is that Flat Rate Scheme users leave it before October 2027. Talk to your accountant before you do, so the timing suits your VAT periods.

Warning: check the VAT settings on every SKU

Review the VAT rate set on every SKU in your marketplace accounts before October 2027. From then on, the marketplace will work out how much VAT to deduct from those settings. On Amazon this is the product tax code in Seller Central.

If the code is wrong, Amazon will deduct the wrong amount from your payouts. We see this regularly: children's clothing and books are zero-rated, for example, but we find them on the standard 20% code in seller accounts.

Today an accountant can correct for that when preparing the VAT return. From October 2027, Amazon will already have deducted 20% and paid it to HMRC. There should still be a way to correct for this, but it will be significantly worse for your cash flow as you will be temporarily out of pocket for each mistake.

Set the right code on every new listing added to a marketplace and go back through your existing ones. Our Amazon accountants can review your tax codes before the change.

The cash flow effect and what we recommend

Since August 2024, Amazon has charged UK VAT on most of its fees to UK sellers, and stock, postage and software usually carry VAT too. Once the marketplace is paying the VAT on your sales, we expect most UK sellers to move into a repayment position, meaning HMRC owes them money each quarter instead of the other way round. HMRC's own paper says some sellers "may be brought into a repayment position".

The first effect is on your payouts. Today the VAT reaches you eventually, even if Amazon keeps your money for a few weeks first. From October 2027 it never arrives.

For the seller above, that's around £5,000 a quarter, and for many businesses it's the money that pays for the next stock order. If that's you, plan the replacement now, whether that's a finance facility, a slower reorder cycle or monthly VAT returns.

The second effect is waiting for refunds. HMRC usually pays within 30 days of a return being filed, so VAT paid on stock bought at the start of a quarter can take three or four months to come back.

Our initial recommendation is for affected sellers to consider moving from quarterly to monthly VAT returns, so refunds arrive every month. There are drawbacks, though.

You'll file twelve returns a year instead of four, and repayment returns are more likely to be checked by HMRC before the refund is paid. The figures need to be right every time, and a specialist ecommerce VAT accountant who works with marketplace reports every day is the safest way to get them right.

Our view

We welcome anything that puts sellers who have always paid their VAT on the same footing as those who haven't. Compliant UK sellers have been undercut for years by competitors who don't charge VAT, many of them overseas sellers posing as UK businesses.

Our concern is the cash flow cost for the sellers who did nothing wrong. They'll now wait longer for their money. We'd like HMRC to commit to paying marketplace sellers' refunds quickly, and to settle the Flat Rate Scheme question well before October 2027.

Frequently asked questions

I'm VAT registered but only sell £20,000 a year on eBay. Am I affected?

Yes. From October 2027 the rules apply to every VAT registered UK seller, however much they sell on the platform, so eBay will deduct the VAT on your sales of new goods to consumers and pay it to HMRC. You'll still file VAT returns and reclaim the VAT on your costs.

The £90,000 per-platform figure only decides whether an unregistered seller is caught. It doesn't change when you must register for VAT.

Does it apply to my Shopify store or my own website?

No. The rules cover sales made through online marketplaces, which HMRC defines as platforms that set the terms of sale, handle payment and are involved in ordering or delivery. Your own website isn't a marketplace, so sales there carry on as usual.

When does it start?

October 2027. Secondary legislation will set the threshold, how it operates and the treatment of second-hand goods, and HMRC guidance will follow before the start date.

What happens to the VAT I reclaim on stock and Amazon fees?

You keep reclaiming it. With no VAT on your marketplace sales to set it against, your returns will usually show a refund due from HMRC instead of a payment. Moving to monthly VAT returns brings the money back faster, although repayment returns are more likely to be checked by HMRC.

Next steps

We look after VAT for sellers on every marketplace, from registration and tax code checks to cash flow planning around returns. If you want to know what October 2027 means for your business, book a discovery call and we'll walk through your numbers with you.