VAT scheme checker for online sellers

You must register for VAT once your total taxable turnover goes over £90,000. The test is a rolling one, so it looks at any twelve month run of trading, and a strong Q4 on Amazon can push a company over the line in February rather than at the year end. You can also register voluntarily below the threshold, which many importers do so they can reclaim import VAT.

What you can choose from

• Standard accounting. Output VAT on sales, less input VAT on purchases, four returns a year. No turnover limit.
• Flat rate scheme. A fixed percentage of gross, VAT inclusive turnover. Open to companies expecting £150,000 or less of VAT taxable turnover in the next twelve months, with an exit once you pass £230,000 including VAT.
• Cash accounting. VAT follows the money rather than the invoice date. Join at £1.35 million or less, leave above £1.6 million.
• Annual accounting. One return a year with instalments through the year, same thresholds as cash accounting.
• Margin schemes. VAT on the difference between what you paid and what you sold for, for eligible second hand goods, antiques and collectables.
• Retail schemes. Three variants for businesses making large numbers of small value sales.

Cash accounting and annual accounting can run alongside each other. Flat rate has its own rules and cannot be combined with cash accounting in the usual way, because the flat rate scheme has a cash based version built into it. The full HMRC detail sits at gov.uk/vat-registration.

Flat rate looks attractive on paper because one percentage replaces all the arithmetic. You apply your sector rate to gross turnover, report the result in Box 1, and in most cases you cannot reclaim VAT on purchases. There is an exception for a single capital asset purchase over £2,000 including VAT, and new registrations get a one percentage point reduction for the first twelve months from the date of registration rather than the date you joined the scheme.

For a seller buying stock, that trade is usually a bad one. If you spend £120,000 a year with UK suppliers, the input VAT you give up dwarfs the admin you save. There is also the limited cost trader rule, which pushes a business onto a 16.5 per cent rate where VAT inclusive spending on goods is under 2 per cent of VAT inclusive turnover, or under £1,000 a year.

What a VAT scheme checker for online sellers should ask

• What share of your sales go to customers outside the UK
• How much VAT you pay to UK suppliers, freight agents and warehouses each quarter
• Whether you import stock, and whether you use postponed VAT accounting
• Which marketplaces you sell through and where the goods sit at the point of sale
• How many returns and refunds you process in a typical month

One seller we took on had around 70 per cent of her watch sales going overseas while sitting on flat rate, which meant she was paying a percentage on sales that carried no UK VAT at all. Moving her to the standard scheme meant VAT on the UK 30 per cent and a full reclaim of input VAT. HMRC’s own flat rate guidance is at gov.uk/vat-flat-rate-scheme.

Three things trip up sellers who buy abroad and sell abroad, and all three are about where the goods and services move rather than where the money lands.

Goods coming in

When you import stock, import VAT and any customs duty fall on you at the border. Postponed VAT accounting lets you declare that import VAT on the return instead of paying it at the point of entry and waiting to reclaim it, which protects cash. You need the monthly postponed import VAT statement from your customs declaration service account to support the figures, and plenty of companies file returns for a year without ever downloading one.

There is a specific trap if you are on flat rate and using postponed VAT accounting. Since June 2022 the value of those imported goods is left out of the flat rate calculation, and the full amount of import VAT is added into Box 1 after the flat rate percentage has been applied. Software will not do that on its own.

Goods going out

Exports to customers outside the UK are zero rated where you hold proper evidence that the goods left, normally within three months. Zero rated is still a taxable supply, so it counts towards the registration threshold and, on flat rate, it still sits inside the turnover you apply your percentage to. That single point is what makes flat rate expensive for export heavy sellers.

Services bought from abroad

Advertising, software subscriptions, apps and marketplace fees invoiced by an overseas entity usually fall under the reverse charge. You account for the VAT as both output and input on your own return. It nets to nil on standard accounting in most cases, but it is still wrong to omit it, and on flat rate it can create a real liability.

Since the 2021 rules, a marketplace is not always a shop window. Where a platform sets the terms, handles the payment and is involved in ordering or delivery, HMRC treats it as an online marketplace, and in some situations the platform becomes liable for the VAT on the sale instead of you.

The dividing line turns on establishment and on where the goods sit. A seller without a UK establishment, selling goods already located in the UK through a marketplace, will find the marketplace accounting for the VAT and paying out net. Being incorporated here is not enough on its own. HMRC looks for essential management decisions and central administration happening in the UK, or a fixed place with people and resources making sales. A registered office, a serviced address or a virtual office will not carry it.

If you are a UK established company selling your own UK stock, you account for the VAT yourself today. That may not last. On 23 June 2026 HMRC and HM Treasury opened a consultation on extending marketplace liability to UK based businesses selling goods held in the UK, with options discussed for softening the effect on smaller sellers. It closed on 18 August 2026 and no legislation has followed at the time of writing, so nothing has changed yet. Worth watching if most of your revenue comes through a platform.

Where goods are imported for sale through a marketplace, you remain liable for the import VAT and duty when they arrive, and registration is what lets you reclaim it. Keep the two legs separate in your records: what you paid at the border, and what the platform did with the VAT on the eventual sale.

Most VAT errors we find in e-commerce books are not scheme choices. They come from the gap between what the marketplace paid you and what actually happened in the month.

A Shopify or Amazon payout is a net figure. Sitting underneath it are gross sales, refunds, partial refunds, promotional discounts, gift card redemptions, shipping charged to the customer, selling fees, fulfilment fees, storage, advertising and currency conversion. Posting the payout to a sales account treats every one of those as though it did not exist, which understates turnover, hides deductible input VAT and leaves refunds uncredited.

What correct treatment looks like

• Gross sales recorded by VAT treatment, so UK standard rated, zero rated exports and marketplace facilitated sales are each in their own place
• Refunds and credits reversed in the period they occur, at the same rate as the original sale
• Discounts reducing the taxable amount rather than being buried in fees
• Platform fees recorded separately, with the reverse charge applied where the invoice comes from an overseas entity
• A reconciliation between the settlement total and the bank, so the books tie back to money received

This is why we set up A2X and map it to Xero or QuickBooks for Shopify, Amazon, Etsy and eBay sellers. It splits the settlement into its parts and posts them to accounts that match the VAT treatment. The mapping is the part that matters, and it is the part that most often gets left on the default. More on how we handle that on the e-commerce VAT and A2X page.

The timing schemes rarely get a mention in generic VAT articles, and for some sellers they make more difference than the flat rate debate.

Cash accounting

You pay VAT to HMRC when the customer pays you, and reclaim when you pay your supplier. Marketplace sellers are paid quickly, so the output side gains little. It can help a company selling wholesale on 60 day terms alongside its own storefront, where a large invoice would otherwise push VAT out of the door before the money arrives. Join at £1.35 million or less of VAT taxable turnover, leave above £1.6 million.

Annual accounting

One return a year, with instalments based on an estimate. Same entry and exit thresholds as cash accounting. Fewer filings sounds appealing, though for a growing seller it means a single large balancing payment and less frequent sight of what is owed. We rarely recommend it where volumes are rising fast.

Margin schemes

If you deal in second hand goods, antiques, collectables or certain works of art, a margin scheme charges VAT on the difference between purchase and sale price rather than the full selling price. For resellers buying privately, where no VAT was charged to you on the way in, this changes the economics completely. The record keeping is strict, with a stock book recording each item’s purchase and sale, and it cannot be applied to goods you bought with VAT reclaimed.

Retail schemes exist for very high volumes of small value sales. For most online sellers with proper software, the point of sale data is already good enough that a retail scheme adds nothing.