VAT for Online Marketplace Operators

Introduction

If you operate an online marketplace in the UK, you may be responsible for charging and accounting for VAT on sales made by overseas sellers through your platform. Your VAT obligations depend on where the seller is established, where the goods are located when sold, and the value of the shipment. This article explains when you're deemed to make the supply, your registration and record-keeping requirements, and the checks you must carry out on overseas sellers.

What counts as an online marketplace?

HMRC defines an online marketplace as a business that uses a website or mobile app where third parties can offer goods for sale to customers. To qualify as a marketplace, you must be involved in all of the following:

Setting terms and conditions on sales
Processing or enabling customer payments
Ordering or delivery of goods

You're not considered an online marketplace if you only provide one of these services:

Processing payments
Listing or advertising goods
Redirecting customers to other websites or apps without further involvement in any resulting sale

When you're deemed to make the supply

Your VAT responsibilities depend on whether the seller is established in the UK and where the goods are located at the point of sale.

Checking if a seller is established in the UK

A seller is considered established in the UK if they have a UK business establishment. This exists when:

Essential management decisions are made in the UK and the business's central administration is carried out here, or
The business has a fixed establishment in the UK (a permanent physical presence with the human and technical resources to make or receive taxable sales)

The following criteria alone are not sufficient to demonstrate UK establishment:

Being incorporated in the UK
Having a registered, serviced or virtual office
Having a UK address in the business name

The business must have a genuine operating presence in the UK. You should obtain evidence to confirm a seller's place of establishment to avoid being liable for under-declared VAT.

Goods in the UK at the point of sale

If goods are in the UK when sold, your responsibilities differ depending on whether the seller is established in the UK.

Sales by overseas sellers

You're liable for VAT on goods sold by overseas sellers when the goods are located anywhere in the UK at the point of sale. To charge and account for VAT, you must:

Know the precise nature of the goods to apply the correct VAT rate
Register for VAT in the UK
Keep records of the goods sold and ensure you have accurate information to apply the correct VAT treatment

You'll be held liable for under-declared VAT if you cannot show you've taken reasonable steps to ensure the correct VAT was charged.

Sales by UK-established sellers

If the seller is established in the UK, they remain liable for VAT on the sale.

Northern Ireland specific rules

Where goods are located in Northern Ireland at the point of sale and sold to a customer in Northern Ireland:

If the seller is not established in the UK or EU, you're liable for the VAT
If the seller is established in the UK or EU, they're liable for any VAT due

Sales to UK VAT-registered businesses

When goods in the UK are sold to a VAT-registered business, you should pass on all sale details (including the customer's VAT registration number) to the seller. The seller will charge and account for any VAT due.

Goods outside the UK at the point of sale

You must calculate the consignment value using the 'intrinsic value' of the goods. This is the sale price, not including:

Transport or insurance costs (unless included in the price and not shown separately on the invoice)
Other identifiable taxes and charges

Add the individual values of all items in a consignment together to get the total value, unless items are sent individually.

Consignments valued at £135 or less

You're liable for VAT on these sales and must charge it when the goods are sold. Your responsibilities are the same as for goods in the UK: register for VAT, know the correct VAT rates, and keep proper records.

You'll be held liable for under-declared VAT if you cannot show you've taken reasonable steps to ensure the correct VAT was charged.

Sales to UK VAT-registered businesses (£135 or less)

You don't need to charge and account for VAT if the customer is a VAT-registered business. The business customer will account for VAT instead. You should:

Ask for their VAT number
Confirm it's correct using the online VAT number checker
Add a note to the invoice (for example, 'reverse charge: customer to account for VAT to HMRC')
Send it to the business customer

For goods sold to customers in Great Britain, the business receiving goods accounts for VAT on their VAT return using the 'reverse charge' procedure. For goods sold to customers in Northern Ireland from outside the EU, the business may account for it using postponed VAT accounting or other means of paying import VAT.

In both cases, the business customer can recover the VAT as input tax on the same VAT return, subject to normal recovery rules.

Consignments valued at more than £135

Normal import VAT and customs rules apply. If the seller changes the consignment so its total value exceeds £135, it may become subject to import VAT and Customs Duty, and you may need to adjust any VAT already accounted for at the point of sale.

VAT registration and compliance

Once you register for VAT, you must follow standard VAT rules for invoicing and record-keeping.

VAT invoices

Normal rules for VAT invoice content and format apply. You must issue a paper or digital VAT invoice to customers as specified in VAT guidance. For goods sold in Northern Ireland from outside the EU, you don't need to provide a VAT invoice.

Record-keeping requirements

You must keep full records (including VAT invoices) for 6 years from the date any goods are sold.

Compliance checks

HMRC carries out compliance checks to ensure you're paying the right amount of tax at the right time and receiving the right allowances.

Checking overseas sellers' VAT status

You can be held jointly and severally liable for unpaid VAT where:

An overseas seller on your marketplace should have registered for UK VAT but failed to do so, and you knew or should have known this
HMRC tells you that a seller isn't meeting its VAT obligations

When you must check VAT registration

You must check that overseas sellers are registered for UK VAT if they're selling:

Goods to customers in Northern Ireland where the goods are located in Northern Ireland at the point of sale
To other businesses who provide a valid VAT number and the goods are in the UK at the point of sale

Required checks

If you believe an overseas seller should be paying UK VAT, check:

They have a valid VAT Registration Number (VRN)
The location of the seller
The location of the goods being sold
If the seller or those directing them have been removed from your marketplace before
How quickly the seller can fulfil orders from UK customers
How the seller fulfils orders from UK customers
Any information suggesting dishonest conduct or failure to meet VAT obligations

You should tell HMRC when you identify and remove a seller who hasn't met their VAT obligations.

Validating VRNs

You must validate a seller's VRN within 10 days of receiving it using the online VAT number checker. Registrations are updated daily.

If there are differences between the seller's name on your database and the VAT number checker, treat it as a discrepancy. Minor differences (such as 'Ltd' versus 'Limited') may be acceptable if there are no other indicators of non-compliance. Significant differences suggest the seller may be using another business's VRN.

Displaying VRNs

You must display a verified VRN on your website within 10 days of the seller providing it. If the seller gives you their VRN before offering goods for sale, the 10-day deadline extends to the end of the day when they first offer goods for sale.

Take reasonable steps to remove invalid VRNs from your marketplace within 10 days of becoming aware they're not valid. Failure to do so could result in a penalty.

Suspension of sellers without VRNs

Don't allow overseas sellers who must be registered for UK VAT to continue trading on your marketplace if they don't have a VRN and are either:

Advertising or offering goods for sale
Trading on your marketplace and haven't provided a valid VRN after 60 days of trading

Suspend or remove the seller's account and advise them to contact the HMRC VAT helpline.

Delivery speed checks

Information about delivery speeds may reveal that a seller's stated location is incorrect, as it wouldn't be possible to deliver goods from that location in the advertised timeframe. Ask the seller for more information in these cases.

The 'knew or should have known' test

HMRC may hold you jointly and severally liable for unpaid VAT if you knew, or should have known, that an overseas seller should have registered for UK VAT but hasn't. You'll be liable for unpaid VAT if you haven't stopped the seller from offering goods for sale after 60 days from when you first knew or should have known.

HMRC will consider various factors, including any information you held or should have reasonably requested that would help determine whether the seller should have registered for VAT.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.