VAT and e-Commerce - Online marketplaces

E-commerce is thriving not only in the UK but worldwide, with a large portion of it utilising online marketplaces for sales. As such, it's becoming increasingly important to comprehend the VAT implications of trading on online marketplaces.

What is an online marketplace?

An online marketplace is an e-commerce website, or app which facilitates the sale of goods between buyers and third-party sellers. The operator of an online marketplace is the person who controls access to, and the contents of, the online marketplace.

They are involved in determining the terms under which the goods are sold, dealing with the payment for the goods sold and dealing with the ordering and delivering of the goods.

HMRC’s definition of an online marketplace is fairly broad and captures businesses which do all of the above, even if they are not traditional online selling platforms such as Amazon or eBay.

What is not considered an online marketplace?

If a business only processes payments for the supply of goods or lists goods for sale, then it is not considered an online marketplace.

An advertisement that redirects customers to other websites where goods are offered for sale without any further involvement is also not considered an online marketplace.

How does VAT work for online marketplaces?

In some cases, the online marketplace is considered the seller of the goods sold through the platform and is responsible for paying the VAT.

Online marketplaces can be held responsible for unpaid VAT by sellers who are not following the rules. The VAT rules for sales made through online marketplaces are complex and depend on the location of the goods, the seller's location, and whether the customer is registered for VAT.

Goods outside the UK at the Point of Sale

When goods worth £135 or less, which are located outside the UK at the point of sale, are sold to a UK customer, the seller makes a deemed supply to the online marketplace. This is a non-UK transaction and is outside the scope of UK VAT.

The onward sale is a deemed supply by the online marketplace, and the VAT treatment will depend on whether the sale is to a VAT-registered customer. If the customer is VAT registered, the marketplace will not charge VAT. The buyer ‘self-accounts’ for the VAT, i.e. treat the goods as both supplied to and by themselves.

If the customer is not VAT registered, the online marketplace will make the sale and charge the appropriate VAT rate to the customer.

Goods within the UK at the Point of Sale

When goods are in the UK when sold, the VAT treatment is not affected by the value of the goods.

Sales to a VAT-registered customer require the seller to be VAT-registered and account for UK VAT at the applicable VAT rate.

A sale made by an overseas seller to a customer who is not VAT registered is a deemed supply at the zero rate from the seller to the online marketplace. The online marketplace accounts for the VAT as appropriate at the point of sale.

The overseas seller remains liable for any import VAT and customs duty when the goods are imported into the UK.

VAT obligations for online marketplace operators

• Online marketplaces are required to request and display details of the seller’s UK VAT registration number and to check that the number provided is valid using HMRC’s online VAT number checker.
• If the online marketplace becomes aware that a VAT registration number is incorrect, it must take steps to remove the number within 10 days of becoming aware of this.
• The online marketplace must determine where the goods are located at the time of sale as it is their responsibility to confirm whether the supply is liable to UK VAT.
• The online marketplace will be held liable for under-declared VAT if they cannot show they have taken reasonable steps to make sure the correct VAT was charged.