UK independent retailers warn that proposed exemptions for smaller sellers and second-hand goods could weaken tax enforcement and reduce funding for business rates relief.
Proposed changes to UK online marketplace VAT rules could leave opportunities for tax evasion if exemptions for smaller sellers and second-hand goods are too broad, the British Independent Retailers Association (Bira) has warned.
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The association supports plans to extend online platforms’ responsibility for collecting value added tax (VAT), but says the final rules must prevent non-compliant sellers from exploiting gaps in the system.
The warning, issued on 16 October ahead of the UK Budget on 28 October, follows reports that platforms such as Amazon, eBay and Temu could become responsible for collecting VAT on more sales made through their services.
The government has consulted on extending marketplace VAT liability to consumer sales by UK-based businesses whose goods are located in the UK when sold. The consultation closed on 18 August 2026, and the proposals remain subject to a government decision.
Seller threshold draws scrutiny
Bira’s concerns centre on reports that marketplace VAT collection could apply only to sellers with annual sales above £90,000, while second-hand goods could be excluded.
“The headline is positive, but the devil is in the detail,” said Bira chief executive Andrew Goodacre.
The association warned that broad exemptions could weaken enforcement and reduce the revenue generated by the reforms. Bira cited £1bn in potential revenue reported in connection with the plans, although this is not a confirmed government forecast.
The government’s preferred consultation option is a £90,000 sales threshold for each marketplace. This would determine when a platform becomes responsible for accounting for VAT on a UK business’s sales through that service.
The threshold would not replace existing VAT registration rules, which are based on a business’s total taxable turnover across its sales channels. The consultation also considered a lower platform threshold and VAT relief for eligible smaller businesses.
Reform would expand platform VAT duties
Online marketplaces already account for VAT on certain sales involving overseas businesses. These include qualifying imported consignments worth £135 or less and sales to UK consumers of goods already located in the UK, subject to specific conditions and exceptions.
The proposed extension would transfer responsibility for accounting for VAT on eligible domestic marketplace sales from UK sellers to the platforms facilitating those transactions.
The government says the reform aims to tackle tax non-compliance that allows some sellers to undercut businesses meeting their tax obligations. The changes could therefore affect competition between online retailers and between online sellers and high street shops.
Second-hand sales pose separate challenges
The treatment of second-hand goods presents another challenge for the proposed reforms.
Eligible VAT-registered UK dealers can use the Second-hand Margin Scheme to calculate VAT on the profit margin between the purchase and selling prices, rather than on the full selling price.
Extending marketplace VAT liability without appropriate adjustments could complicate the use of this scheme and potentially bring the full selling price into the VAT calculation. This could affect dealers’ profit margins and pricing.
Excluding commercial second-hand sales from marketplace collection would not automatically make those transactions VAT-free. Private individuals selling personal possessions outside a business would remain outside the proposed extension.
Revenue linked to business rates relief
The government has committed to directing revenue from the reforms towards improvements to business rates, a property-related tax paid by many shops and other commercial premises.
The planned support is intended to benefit high street businesses, including pubs, restaurants and hotels. For independent retailers facing pressure from operating costs, the proposed changes could therefore have implications beyond online sales and tax compliance.
Bira has warned that exemptions could reduce the revenue available for this support while allowing non-compliant sellers to retain a competitive advantage.
Government decision awaited
The government is considering responses to the consultation before deciding how to proceed. If ministers take the proposals forward, the process is expected to include consultation on draft legislation before the changes are finalised.
The final rules will determine when online marketplaces must account for VAT on domestic sales, how smaller sellers are treated and whether commercial second-hand goods fall within the new arrangements.
For retailers and platforms, the key question is whether the reforms can improve tax compliance and fair competition without creating new loopholes or imposing disproportionate costs on legitimate businesses.
