Online marketplaces including Amazon, eBay and Temu will be required to collect VAT on sales made by qualifying UK businesses under new measures announced in the Autumn Budget, as the Government looks to tackle tax evasion and create fairer competition for high-street retailers.
Chancellor John Healey confirmed the changes on Wednesday (28 October), with the new rules set to take effect from October 2027.
Under the plans, online marketplaces will become responsible for collecting and accounting for VAT on sales made through their platforms by UK VAT-registered businesses, as well as businesses making more than £90,000 in annual sales through an individual marketplace.
The changes are intended to prevent businesses from avoiding VAT obligations and undercutting competitors that comply with UK tax rules.
Announcing the measures, Mr Healey said: “I will strengthen the requirements for online marketplaces so that sellers cannot avoid paying VAT when they sell online.”
The Government says the reforms will help create a more level playing field between online sellers and traditional retailers, with revenue raised contributing towards business rates reductions for physical stores.
Tackling unfair competition
The announcement follows growing concerns about the competitive advantages enjoyed by some businesses selling through major online marketplaces.
Independent electrical retailers have repeatedly raised concerns about competition from online-only sellers, particularly those offering products at prices that established UK businesses struggle to match.
Under existing rules introduced in January 2021, online marketplaces are already responsible for accounting for VAT on certain sales involving overseas businesses.
However, HM Revenue & Customs (HMRC) says compliance problems remain, including cases where overseas sellers misrepresent themselves as UK-established businesses to avoid the existing requirements.
The new measures will extend marketplace liability to UK businesses selling goods located in the UK at the time of sale.
The £90,000 threshold will apply separately to each marketplace, meaning businesses selling through several platforms will be assessed against their sales on each one.
The rules will not apply to private individuals selling personal belongings, business-to-business transactions or sales of second-hand goods.
For electrical retailers selling refurbished appliances or consumer electronics, the exclusion for second-hand goods means existing VAT arrangements for those products will remain in place.
What does this mean?
The reforms could have significant implications for the electrical retail sector, where independent businesses compete with large online marketplaces offering everything from televisions and major domestic appliances to small electrical products and accessories.
By making marketplaces responsible for collecting VAT on qualifying transactions, the Government hopes to reduce opportunities for tax evasion and prevent compliant businesses from being placed at a disadvantage.
However, the changes will also affect legitimate UK electrical retailers selling through platforms such as Amazon and eBay, which will need to prepare for changes to how VAT is collected and accounted for.
HMRC has confirmed that further guidance will be published ahead of implementation to help affected businesses understand their obligations.
The announcement forms part of a wider package of measures in the Autumn Budget aimed at supporting physical retail, including changes to business rates for smaller premises.
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