HM Revenue & Customs (HMRC) is considering extending online marketplace VAT liability to sales by UK businesses, potentially shifting responsibility for accounting for VAT from some retailers to the platforms through which they sell.
The government says the change could tackle widespread non-compliance and reduce the competitive advantage of sellers that fail to meet their VAT obligations. HMRC estimates that tens of thousands of UK businesses trading through online marketplaces are not fulfilling their VAT obligations, potentially costing the Exchequer hundreds of millions of pounds a year.
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A joint HMRC and HM Treasury consultation on the proposal closed on 18 August 2026. No final decision has been announced.
HMRC targets marketplace VAT non-compliance
Online marketplaces have been responsible for VAT on certain sales by overseas businesses since reforms introduced in 2021. These include some low-value imports and goods already located in the UK when sold by an overseas seller.
The government says those reforms have improved VAT compliance. It estimates that the changes, together with the removal of Low Value Consignment Relief, have raised more than £8bn and continue to generate around £1.8bn a year.
However, HMRC says the existing rules have had only a limited impact on marketplace VAT non-compliance because they do not generally cover domestic sales by UK businesses.
The proposed extension would make online marketplaces responsible for accounting for VAT on certain business-to-consumer sales by UK businesses where the goods are located in the UK at the point of sale. It would cover retail goods as well as restaurant and takeaway food sold through online marketplaces.
The government argues that businesses failing to meet their VAT obligations can undercut compliant competitors, both online and on the high street. It intends to use additional revenue generated through improved compliance to support improvements to the business rates system for high street businesses.
What could change for retailers?
Under the proposal, an online marketplace would account for VAT on affected sales made through its platform by UK businesses, rather than the underlying seller accounting for the tax.
For VAT-registered retailers, this would change how VAT is handled on affected marketplace transactions. Other sales channels, including retailers’ own websites and physical stores, would continue to operate under existing VAT rules.
The government’s lead proposal includes a £90,000 minimum platform threshold to limit the impact on smaller businesses. Marketplace liability would apply where a UK business’s total sales through an individual platform exceed £90,000.
HMRC is also seeking views on whether a lower threshold would be more effective at tackling non-compliance.
The consultation sought evidence on the administrative, commercial and operational implications of the reform, including the costs and practical issues that marketplaces and businesses could face.
The precise arrangements have yet to be decided.
Smaller sellers could be protected
The proposed £90,000 marketplace threshold would be separate from the VAT registration threshold.
It would determine when an online marketplace becomes responsible for accounting for VAT on relevant transactions, rather than changing the point at which a business is required to register for VAT.
The government is considering the threshold as one way of tackling non-compliance without imposing disproportionate costs on businesses that are not required to register for VAT. An alternative under consideration would provide VAT rate relief to UK businesses below the VAT registration threshold.
Private sellers would remain outside the scope of the proposed rules. Individuals selling unwanted possessions through an online marketplace, for example, would not be affected simply because they use a digital platform.
The government is also considering how second-hand goods sold by UK businesses should be treated, including the option of excluding those transactions from the expanded marketplace liability regime.
BIRA backs action on VAT compliance
The proposals follow calls from parts of the retail industry for stronger action against VAT non-compliance on online marketplaces.
The British Independent Retailers Association (BIRA), which has campaigned for reform of marketplace VAT rules, welcomed the consultation when it was launched in June.
BIRA chief executive Andrew Goodacre said the proposal could help level the playing field for high street retailers facing competition from businesses that fail to meet their VAT obligations.
The association has also argued that reform should protect compliant retailers without creating unnecessary burdens for smaller businesses.
Extending VAT liability would place greater responsibility on marketplace operators, making the final scope of the rules and the systems needed to implement them significant for both platforms and retailers using them.
What happens next?
The consultation closed on 18 August and the government will now consider responses before deciding whether to proceed with the proposed changes.
No change has yet been made to VAT law, meaning the existing online marketplace VAT rules remain in force.
For retailers and marketplace operators, the key questions are whether the proposed £90,000 threshold will be adopted, how businesses below the VAT registration threshold will be treated, and how responsibility for calculating and accounting for VAT will ultimately be divided between sellers and platforms.
