UK VAT Rules and Obligations for Online Marketplaces: Do Sellers Still Need to Register for VAT?

March 23, 2021

Online marketplaces (OMPs) facilitating sales need to comply with new VAT rules in the UK. The new regulations concern the collection, reporting and remittance of VAT, and have come into effect since January 1, 2021.

For which transactions will OMPs need to charge VAT?

Online marketplaces will be now responsible for charging VAT on B2C transactions in the following instances: 

  • Goods stored in the UK and sold by sellers who aren’t based in the UK, regardless of the goods’ value
  • Goods of up to £135 stored outside of the UK.

In both cases, the goods need to be sold through the marketplace where the OMP is facilitating the transaction—and not simply listed or advertised on it. 

This means two things: first, OMPs will have additional obligations, and second, in the two instances described above, these obligations are shifting from the sellers to the OMPs. 

What are the additional responsibilities of OMPs under the new rules?

Online marketplaces will now need to: 

  • Track and categorize correctly all sales transactions
  • Determine whether they should charge VAT
  • Apply the correct VAT rate
  • Store all relevant information for goods sold on the platform
  • Report VAT and remit it to the HMRC.

This means they need to allocate additional resources for each one of these tasks and tackle them proactively and on time. 

Should businesses selling through online marketplaces still register for VAT in the UK?

Businesses selling goods to UK customers on OMPs can still complete their VAT registration in the UK, and it’s actually advisable to do so, for several reasons. Let’s look at them now.

When a foreign seller sells a product to a UK customer, it’s considered that the seller is supplying the product to the marketplace which is a zero-rate transaction. This means that the seller can register for VAT in the UK, as they’re deemed to have sold goods to the OMP. 

Often, they remain responsible for customs duties and import taxes. If they have a UK VAT number, according to VAT deduction rules, they can claim back the VAT on the import into the UK. 

Besides that, they still need to take into consideration B2B sales, if they dispatch goods from the UK. The new rules apply to VAT on B2C transactions. In case the customer is a UK business that provides their UK VAT number, then the sale is a B2B transaction and the regular VAT rules for B2B trade apply. The seller needs a UK VAT registration to be able to handle this correctly. 

If the foreign seller dispatches goods from outside the UK, the UK VAT rules don’t apply. Online marketplaces might still request a UK VAT number in order to facilitate the tracking and reporting of sales on their end. This means that sellers should consider registering for VAT in the UK, especially if they sell at multiple marketplaces and need to deal with their procedures separately. 

In the future, these rules might change and the HMRC might require all foreign sellers to register for VAT. It might therefore be a good idea to anticipate that and act proactively in order to prevent any disruptions. 


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