VAT for UK marketplace sellers: when the marketplace collects it, when you do, flat-rate vs standard, and what to put in the books

VAT is the line most marketplace sellers get wrong in their profit sums, usually by forgetting it on the way in (the price includes it) or on the way out (the fees carry it). This guide covers the four questions that matter for a UK business selling on Amazon or eBay: who has to account for the VAT on a sale, when you must register, whether the Flat Rate Scheme helps, and how the sale, the fees and a refund should be posted. It is general guidance as at October 2026, not advice on your own position; the rules for overseas sellers and for goods crossing borders have exceptions.

Who accounts for the VAT on a sale

Since 1 January 2021 the answer depends on where you are established and where the goods are when they are sold.

The common case for readers of this guide is the first row: a UK company with stock in the UK. The marketplace collects the money but the VAT is yours. Amazon and eBay show the VAT-inclusive price to the customer, pay you the gross amount less fees, and your return must include the output VAT. On a £25 sale that is £4.17, whether or not you noticed it.

If you are established outside the UK and use FBA, the third row applies: the marketplace is the deemed seller, and your invoice to the marketplace is zero-rated. You still need a UK VAT registration to reclaim import VAT, and the marketplace will ask for it.

When you must register

You must register for VAT when your taxable turnover in any rolling 12 months passes £90,000 (the threshold since April 2024), or when you expect it to pass that in the next 30 days alone. Taxable turnover means the VAT-inclusive value of your UK sales, so a seller at £7,500 a month of marketplace sales is at the line. Sales where the marketplace is the deemed supplier do not count towards your threshold, because they are not your supply.

Below the threshold you can register voluntarily. For a product business that usually makes sense once purchases carry significant VAT: you reclaim VAT on stock, freight, fees and software, but you must add 20% to your prices or absorb it. The break-even depends on your margin and on how price-sensitive your listings are, which is a calculation worth doing properly rather than guessing.

VAT on the fees themselves

This changed recently and still catches people out. Since August 2024 Amazon invoices UK-established sellers from a UK entity and charges 20% UK VAT on referral fees, FBA fees, storage and most other charges; the old reverse-charge treatment no longer applies to those invoices. eBay charges 20% VAT on all business-seller fees. If you are VAT registered on the standard scheme you reclaim this as input VAT, so the fee percentages you see on the rate card are your real cost. If you are not registered, or you use the Flat Rate Scheme, you cannot reclaim it, and every fee costs 20% more than the published rate.

Flat Rate Scheme or standard VAT?

The Flat Rate Scheme lets a business with expected VAT-taxable turnover of £150,000 or less (excluding VAT) pay a fixed percentage of its VAT-inclusive turnover instead of working out output VAT minus input VAT. "Retailing that is not listed elsewhere" is 7.5%; there is a 1% discount in your first year of registration; a "limited cost business" (goods cost less than 2% of turnover, or less than £1,000 a year) pays 16.5% instead. You leave the scheme once turnover passes £230,000.

The catch for product sellers is that you cannot reclaim input VAT under the flat rate, apart from capital assets over £2,000. A worked comparison for a seller with £120,000 of VAT-inclusive marketplace sales a year, buying £48,000 (excluding VAT) of stock and paying £18,000 (excluding VAT) in marketplace fees:

The flat rate costs this seller £2,200 a year more, and the gap widens as stock purchases grow. The scheme can still win for a seller with very low purchases, or in the first year at 6.5%, but for most sellers moving physical goods the standard scheme is cheaper, and it is the only one that lets the fee VAT and import VAT come back. Run your own figures before choosing; you can leave the flat rate at any time but cannot rejoin for 12 months.

What to put in the books

Keep three ideas apart: the price the customer paid, the VAT inside it, and the fees. For a VAT-registered seller on the standard scheme, a £25.00 Amazon sale with £6.84 of fees (£8.21 including VAT) posts like this:

When the payout arrives, the bank is debited and the receivable is credited for the net amount. A refund reverses the first three lines in proportion to the amount refunded and posts the commission credit from the marketplace net of the administration fee. Cost of goods is posted when the unit ships, at its landed cost excluding any VAT you reclaimed.

Where the marketplace is the deemed supplier (an overseas seller with UK stock), the sale to the marketplace is posted as a zero-rated sale at the net amount and no output VAT is recorded; the marketplace's fee invoices are posted as above.

Three habits keep the return clean: post every sale at its net value with the VAT in the control account, never as "£25 of sales"; post fees from the marketplace's own invoices or settlement lines, not from the rate card; and keep the digital records that Making Tax Digital requires, which means the ledger must be able to produce the figures on the return from the transactions, not from a typed-in summary.

Merchvio posts the net sale, the output VAT, the fees and their input VAT on each order automatically, and keeps the VAT control account in the accrual books so the quarter's return comes from the transactions.

Thresholds, scheme percentages and the marketplace rules above were checked against GOV.UK guidance in October 2026. They are general information for UK-established businesses; cross-border sales, the EU's own marketplace rules and margin schemes have their own treatment, and a VAT adviser should confirm your position.