Written for online shops in the UK selling on their own site or on marketplaces: direct-to-consumer brands, private-label and FBA sellers, dropshippers and subscription sellers.
The short version
- Check who charges VAT on each channel.UK-based, selling UK-held stock? You charge your own VAT, even on marketplaces. On overseas sellers' UK-held goods, the marketplace handles it.
- Price in the end of small-parcel duty relief.If you ship direct from a supplier abroad, duty can fall due on low-value parcels once the relief ends. Cost it in now.
- Test Flat Rate against the VAT you reclaim.You pay a fixed share of sales and give up reclaiming VAT on stock and most costs. Resellers of standard-rated stock usually lose.
Selling online puts you in VAT situations a high-street shop rarely meets: a marketplace that charges VAT for some sellers and not others, parcels sent straight from a supplier abroad, customers in the EU, and stock sitting in someone else's warehouse. The general VAT lesson covers when to register. This one is about who charges what, channel by channel.
Who charges VAT on each sale
- You are established in the UK and sell stock already in the UK through a marketplace: you charge and account for your own VAT. The marketplace collects none of it.
- An overseas seller's goods already in the UK, sold through a marketplace: the marketplace is the deemed supplier and accounts for the VAT (VATA 1994 s.5A).
- A parcel of £135 or less sent from abroad to a UK consumer: no import VAT at the border. The seller charges UK VAT at the point of sale, or, on a marketplace sale, the marketplace does as deemed supplier, even when the seller is UK-established (VATA 1994 s.5A). As of Oct 2026.
- Above £135: import VAT and duty are due at the border, and a registered importer recovers the import VAT through postponed VAT accounting. As of Oct 2026.
- A seller not established in the UK has no registration threshold and registers from its first UK taxable supply, such as goods sold from a UK warehouse (VATA 1994 Sch 1A).
Two smaller rules catch online sellers out. Delivery charges follow the VAT liability of the goods, so a basket mixing zero-rated and standard-rated goods splits the delivery charge between them. And refunds reduce your output VAT through a credit note in the period you make them.
The duty relief on small parcels is ending
Customs duty relief on consignments valued at £135 or less continues until the Treasury appoints its end by statutory instrument, no later than October 2028. If you ship direct from a supplier abroad, price the change in now. As of Oct 2026.
| Duty at an assumed 12% rate (check the commodity code) | £10.80 |
| VAT on the duty, if charged as on imports today | £2.16 |
| Extra cost per parcel, before any carrier fee | £12.96 |
Today the customer pays £18.00 VAT at checkout and no duty. The 12% duty rate is an assumption for the example.
Selling to EU customers
Goods shipped from Great Britain to an EU consumer are zero-rated exports here, with evidence of export, and imports in the EU. For consignments of €150 or less you can register for IOSS (a seller outside the EU usually needs an EU intermediary) and charge the customer's own VAT at checkout. Shipping so the carrier collects VAT and a handling fee at the door drives refused parcels. Since 1 July 2026 the EU also charges a temporary EUR 3 customs duty per item category on business-to-consumer parcels sent from outside the EU with a value of EUR 150 or less; other goods use the normal EU tariff. As of Oct 2026.
Goods shipped from Great Britain are imports into the EU, so the OSS that covers EU-held stock does not apply to them.
Stock held in an EU warehouse, through Pan-EU FBA or a European 3PL, means registering for VAT in the country where it is stored. Buyers look for unregistered EU VAT in due diligence and cut the price for it.
The Flat Rate Scheme for a reseller
Flat Rate looks simple: you pay a fixed percentage of VAT-inclusive turnover. Retailing not listed elsewhere uses 7.5%. A limited cost trader, with goods under 2% of VAT-inclusive turnover or under £1,000 a year, pays 16.5%. You can join only if expected taxable turnover is £150,000 or less excluding VAT, with 1% off in your first year of registration. The catch is that you give up recovering input VAT, except on capital goods over £2,000, so for a reseller of standard-rated stock it is usually poor. At 7.5%, standard accounting comes out cheaper once your standard-rated stock and costs, including VAT, pass about 55% of VAT-inclusive sales. Below that, as in the example, Flat Rate can win, so test it on your own figures. As of Oct 2026.
| Output VAT on £120,000 of VAT-inclusive sales | £20,000 |
| Less input VAT on £48,000 of standard-rated stock and costs | -£8,000 |
| VAT due under standard accounting | £12,000 |
| VAT due under Flat Rate at 7.5% | £9,000 |
7.5% x £120,000 = £9,000, £3,000 less than standard accounting; in the first year of registration, 6.5% gives £7,800Not a limited cost trader, and stock and costs are only 40% of sales, so Flat Rate wins here. At £70,000 of stock and costs, standard accounting would be £8,333 against £9,000. Rerun it whenever your stock costs rise.
Platforms report your sales
A reporting platform operator must send HMRC the prescribed information on each reportable seller by 31 January after each calendar year, and give the seller the same information. Not every platform reports every seller. HMRC uses the data for nudge letters, so reconcile it to your tax return. As of Oct 2026.
Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023, SI 2023/817
VAT and duty figures in this lesson were rechecked against Budget 2026 (28 Oct 2026).
Asked in Greymill
Why: your Leicester parcels arrive in the EU as imports. The Union OSS is for sales from stock held in the EU, and for Northern Ireland sellers.
IOSS (Import One-Stop Shop) fits instead. For parcels of €150 or less (As of Oct 2026), you can register and charge the customer's own VAT at checkout. A seller outside the EU usually needs an EU intermediary.
Or let the customer pay import VAT, but the carrier then collects it plus a handling fee at the door, and more parcels get refused.
New since 1 July 2026: the EU charges a temporary €3 customs duty per item category on these parcels (As of Oct 2026).
At one category each: 300 x €3 = about €900 a month
Want me to rework your EU delivery prices with that duty built in?
Ask it about your own business
Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.
I run an online shop in the UK. Check who should be accounting for VAT on each of my channels and whether the Flat Rate Scheme would suit me. My channels: [own site, Amazon, eBay, other]. My stock is held [where]. I ship to [UK only, or the EU too]. VAT-inclusive sales [£ a year]; VAT on stock and costs [£ a year].
More for online retail and ecommerce in the UK
- Knowing whether an order makes money after ads, free delivery and returnsWork out what each order really leaves behind on your VAT-exclusive price, then the ROAS you need just to break even on your ads.Read the lesson
- Paying for stock and ads weeks before the platforms pay youBuild a 13-week cash flow on each platform's real payout timing, allow for reserves, holds and chargebacks, and price any revenue-based advance before you sign.Read the lesson
- Making sure what you import, own-brand or dropship is legal to sellIf you import, own-brand or dropship, the law can treat you as the producer: what that means for safety duties, markings, category paperwork and packaging.Read the lesson
- What your returns policy can say, and what the law has already decidedOnline customers have a right to cancel and a separate right to reject faulty goods, so write terms that match both and refund disputes stop costing you.Read the lesson
- Staffing the Christmas peak with agency pickers, temps and freelancersBlack Friday to the January returns needs extra hands: the agency, pay, safety and freelancer rules that apply to an online shop's peak team.Read the lesson
- Getting reviews, creator posts and email sales without a fineReviews, influencers, sale prices and email now carry direct fines for online shops; here is how to use each one within the rules.Read the lesson
- Amazon has suspended my account and is holding my moneyHow to get a suspended marketplace account back with one complete appeal, the notice rights you have, and how to keep trading while your money is held.Read the lesson
Open the interactive lesson · Every online retail and ecommerce lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- VAT Notice 700/1 and registration thresholds (VAT, duty and cross-border sales)
- VATA 1994 Sch 1A (VAT, duty and cross-border sales)
- VATA 1994 s.5A (VAT, duty and cross-border sales)
- Postponed VAT accounting (VAT, duty and cross-border sales)
- Policy paper "Reforming the customs treatment of low value imports into the UK" (published 13 July 2026), Detailed proposal, Operative date (VAT, duty and cross-border sales)
- Notice 703 sections 3 and 6 (VAT, duty and cross-border sales)
- Flat rate percentages (Unit economics and worked examples)
- Notice 733 section 9 (Unit economics and worked examples)
- Base fees table (Unit economics and worked examples)
- Retail sales, Great Britain: August 2026, online sales section; series J4MC (Unit economics and worked examples)
- Bank Rate history; MPC dates (Unit economics and worked examples)
- Consumer price inflation, UK: August 2026, main points (Unit economics and worked examples)
- When to register (Hard cases: tax, cash, marketplaces and exit)
- Art 4 (Hard cases: tax, cash, marketplaces and exit)
- regs 5 and 7 (Hard cases: tax, cash, marketplaces and exit)
- Announcement, 1 Aug 2023 (Pitfalls that embarrass the product)
- Part 4 Chapter 2; commencement regulations (Pitfalls that embarrass the product)
- IOSS scope (Pitfalls that embarrass the product)
- s.22(3) (Pitfalls that embarrass the product)
- reg 34(9) to (11) (Pitfalls that embarrass the product)
- Notification (SCPN) (Pitfalls that embarrass the product)