Online marketplace sales and VAT: who foots the bill?
If you sell items via eBay, Amazon or similar online marketplaces – as an individual or as a business – the question of who pays the VAT is important.
This was one of the questions answered by the tribunal in HBS Enterprises Ltd v HMRC.
Background
Let’s say you sell a pair of shoes online via Amazon for £60 (inclusive of VAT) and you should account for £10 VAT.
Amazon tells you: “We’ve got you covered – we’ve already paid the VAT.” Do you still need to pay £10 VAT to HMRC or can you rely on Amazon covering the bill?
It’s not a new question, but it highlights an issue that we are seeing increasingly with traders selling through online marketplaces.
There are three possible answers:
- Sometimes marketplaces are responsible for accounting for VAT (with the trader being deemed by VAT law to make a zero-rated sale to the marketplace)
- Sometimes the trader is responsible for accounting for VAT
- Sometimes there is no VAT to pay (e.g. zero-rated and outside-the-scope sales)
Marketplaces often provide a VAT breakdown showing which of a, b or c applies.
Those VAT breakdowns are not always correct and the burden of correcting the error often lands on the trader.
HBS Enterprises and the tribunal decision
With HBS Enterprises (HBS), Amazon had treated the trader as a non-established taxable person (NETP) in some instances.
This appears to have been triggered by HMRC having incorrectly registered HBS as an NETP. This meant that Amazon had:
- Undertaken to account for VAT on some transactions (where HBS was in fact liable to do so)
- Treated some other transactions as zero-rated when they should have been VATable at 20% (although some sales were found to be correctly zero-rated)
On the first point, HBS argued that Amazon had already accounted for the VAT and HBS should not need to do so again, as this would amount to “double taxation”. The tribunal agreed with HMRC.
What the tribunal referred to as the “strict VAT position” is an established concept in VAT: that the correct person must pay the correct amount of VAT.
If a marketplace incorrectly accounts for that VAT then the redress is to ask the marketplace to credit the VAT incorrectly charged.
What you should do next
It’s crucial to review all marketplace VAT breakdowns as early as possible and to challenge any errors as soon as they are recognised.
Accepting the marketplace’s VAT treatment can lead not only to the trader paying the VAT twice but to penalties and interest as well. With HMRC’s late payment interest rate sitting at 7.75% at the time of writing, this can accumulate quickly.
We have seen an increase in enquiries in this sector: a signal that HMRC are actively reviewing the VAT affairs of online marketplace traders.
For expert guidance on the VAT implications of your activities, get in touch with your usual BKL contact or Luigi using the form below.
Contact Luigi
Frequently asked questions: VAT responsibilities for online marketplace sellers
Who is responsible for paying VAT when selling through Amazon or eBay?
In UK VAT law, responsibility depends on the specific transaction and how it’s classified. In some cases, the online marketplace is deemed to supply the goods and must account for VAT; in others, the seller remains responsible. This depends on factors such as where the seller is established, where the goods are located, and the nature of the sale.
Businesses should not assume the marketplace always handles VAT: each transaction type needs to be assessed against HMRC’s rules.
Can I rely on Amazon or another marketplace to handle my VAT correctly?
No. Ultimately, the legal responsibility for correct VAT treatment sits with the business making the supply. While marketplaces often provide VAT calculations and breakdowns, these can be incorrect. If errors go unchallenged, HMRC may still pursue the seller for underpaid VAT. Reviewing marketplace reports regularly and querying discrepancies early is essential to avoid unexpected liabilities.
What happens if VAT is accounted for incorrectly by a marketplace?
If a marketplace applies the wrong VAT treatment, the “strict VAT position” means the correct party must still pay the correct VAT to HMRC. This can result in a business being asked to pay VAT even where the marketplace has already accounted for it incorrectly. The appropriate remedy is usually to seek a correction or credit from the marketplace, rather than rely on HMRC to resolve the issue.
Can businesses end up paying VAT twice on the same sale?
Yes, this is a real risk if VAT errors are not identified and corrected promptly. If a marketplace incorrectly accounts for VAT and the seller is still legally responsible, HMRC may require the seller to pay the VAT again. Unless the issue is resolved with the marketplace, this can effectively result in double taxation.
What is a non-established taxable person (NETP), and why does it matter?
A non-established taxable person (NETP) is a business that is not established in the UK but makes taxable supplies here. This status affects who is responsible for VAT on marketplace sales. If a business is incorrectly classified as an NETP by HMRC or a platform, it can lead to incorrect VAT treatment, including the marketplace accounting for VAT when it should not. Ensuring your VAT registration status is accurate is critical.
What should I do if I spot an error in a marketplace VAT report?
You should raise the issue with the marketplace immediately and keep clear audit evidence of the discrepancy. Early intervention reduces the risk of penalties, interest, and cashflow problems.
In parallel, review whether corrections are needed in your VAT returns and consider taking professional advice to ensure compliance with HMRC requirements.
Are HMRC increasing scrutiny on online marketplace sellers?
Yes. HMRC activity in this area has increased, with more enquiries into businesses selling via platforms like Amazon and eBay. This reflects the complexity and scale of marketplace transactions. Businesses should expect greater scrutiny and ensure their VAT processes, reporting and reconciliations are strong and well-documented.
What are the financial risks of getting marketplace VAT wrong?
The risks go beyond paying additional VAT. HMRC may charge interest on underpaid VAT (which can be significant over time) and impose penalties for inaccuracies. There may also be commercial impacts, such as disrupted cashflow or disputes with marketplaces. Proactive compliance and regular review are key to managing these risks.
Do zero-rated or outside-the-scope sales remove VAT risk entirely?
No, these transactions still require careful analysis. Misclassifying a sale as zero-rated or outside the scope when it should be standard-rated can lead to underpaid VAT and HMRC action. Marketplace reports may not always get this right, so relying solely on platform categorisation without review can be risky.
How can businesses reduce VAT risk when selling through marketplaces?
Businesses should implement regular reconciliations between marketplace reports and VAT returns, verify the VAT treatment of different transaction types, and monitor how they are classified (e.g. NETP status). Seeking specialist VAT advice can help identify risks early, ensure compliance with HMRC rules, and support discussions with marketplaces where corrections are needed.
