Under the reforms, online marketplaces will become responsible for collecting and accounting for VAT on sales made through their platforms by UK VAT-registered businesses and by other UK businesses with annual sales exceeding £90,000 on an individual marketplace platform.
Sales of second-hand goods, personal sales by individuals, and business-to-business transactions will remain outside the scope of the regime.
The measure extends a regime first introduced in 2021, under which online marketplaces became liable for VAT on certain sales made by overseas sellers. The government said the latest changes are intended to address VAT non-compliance among UK-based businesses selling through online platforms and overseas businesses that are circumventing the existing rules by falsely claiming to be UK based, which HM Revenue and Customs (HMRC) estimates costs the exchequer hundreds of millions of pounds annually.
Abigail McGregor, tax law expert at Pinsent Masons, said: “The impact of these proposals will be felt most keenly by those online marketplaces which have, until now, not had to grapple with the rules. For example, those with all of their sellers based in the UK, including local marketplaces and those providing hot food.”
“Even for the online marketplaces that are already applying the existing rules, this extension will, once again, increase their compliance burden in order to capture VAT that is being avoided or evaded by third parties”, she said.
A feature of the reforms is the introduction of a £90,000 minimum sales threshold per platform. Under the new rules, marketplaces will only become liable for VAT on sales by non-VAT registered businesses once that threshold has been exceeded on a particular platform. The government said that the threshold applies separately to annual sales made on each marketplace.
McGregor said: “While not everyone agreed with this approach, it is a pragmatic solution which will be easier to implement, both for the marketplace and for HMRC, than the other options.”
The reforms follow a government consultation held earlier this year on how best to extend online marketplace liability.
The new rules will take effect from October 2027.
McGregor said: “The implementation timetable gives affected businesses an opportunity to prepare, though significant system changes may still be required.”