Navigating VAT Challenges: A Deep Dive into UK eCommerce Taxation

17/01/2024 - UK Tax Compliance Navigating VAT Challenges: A Deep Dive into UK eCommerce Taxation Image by macrovector on Freepik

2024 started off rough for many eCommerce sellers, especially for those selling over Amazon in the UK and in the EU.

If you are one of the Amazon sellers who received an email with the subject line: “Your disbursements have been deactivated in all stores you operate worldwide from DD.MM.YYYY as we have indicators that you might not be EU-established for VAT purposes.“, or similar, you are one of many businesses that found itself in a tricky position. There is no easy exit, due to unclear VAT regulation and guidelines that can be interpreted in various different ways.

This topic has two sides that we need to discuss, UK and EU VAT regulation. To be more focused on each topic, we will divide this blog post into two, each covering one jurisdiction and we will start with the UK.


In the UK, VAT law implements the term Non-established taxable persons (NETPs). Any person who makes taxable supplies in the UK may have a liability to be registered in the UK, even if they have no physical presence there. HMRC refers to such persons as NETPs.

A NETP is any person who is not normally a resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated there.

A UK establishment exists if:

  • place where essential management decisions are made and the business’ central administration is carried out in the UK
  • the business has a permanent physical presence with human and technical resources to make or receive taxable supplies in the UK

HMRC would normally consider a company that is incorporated in the UK to have an establishment here as long as it can receive business supplies at it’s registered office.

For a company to have a UK establishment it would need to be incorporated in the UK and must be able to receive business supplies at the registered address in the UK. If a company is incorporated in the UK at a virtual office and can't receive business supplies, then the UK incorporated company would be a NETP.

Accordingly, a UK incorporated business and a UK established business are not the same. A UK established business and would need a UK address that can receive business supplies.

An easy way to check if a UK incorporated company is considered a NETP is to check the UK VAT number validation on the link:

If the registered business address is: HM REVENUE AND CUSTOMS, RUBY HOUSE, 8 RUBY PLACE, ABERDEEN, AB10 1ZP, GB, HMRC is considering that UK incorporated company is a NETP.

Now, what does it mean for a UK incorporated company to be considered a NETP instead of a UK established one?

First of all, if you’re a NETP and you make any taxable supplies in the UK, regardless of their value and including supplies of digital services, you must register for VAT in the UK and you cannot benefit from the VAT registration threshold of £85,000.

Second, if you are a business selling goods in the UK using online marketplaces like Amazon, eBay, you are not established in the UK, you are considered an Overseas seller. For goods that are in the UK at the point of sale, when the goods are sold to the customer, the overseas seller will be considered to have made a zero-rated supply of the goods to the online marketplace, known as a ‘deemed supply’. The overseas seller does not have to issue invoices to the online marketplace for deemed supplies that are considered to be zero-rated. The online marketplace will be liable to account for the VAT on the sales made through its marketplace by a seller not established in the UK, and UK VAT will be charged at the point of sale, collected, and paid to HMRC.

Where are we now and how to go forward?

New VAT Rules for Online Marketplaces in the UK have been implemented from 01.01.2021.

Today, 3 years later, the UK incorporated online sellers who are selling over online marketplaces are under huge pressure, as their seller accounts have been blocked and they are requested to prove that their UK incorporated business is also a UK established business. If they cannot provide the relevant proof there are no clear guidelines or documents that can be sent to the online marketplaces to identify the status of a UK incorporated company. According to communication from online marketplaces, they will be forced to make the backdated VAT payments to the online marketplaces for all the transactions since 01.01.2021.

Most of the UK incorporated companies selling over online marketplaces have been registered for a VAT and their VAT numbers were available to online marketplaces. By being VAT registered, UK incorporated companies were charging VAT on the sales they made over the online marketplaces in the UK and they paid the VAT regularly to HMRC. This means that there was no VAT gap in their business model, rather there was a gap in the compliance process, communication, and clarity of the VAT rules and guidelines, which led to the situation we are in today.

This looks like one more fight between David and Goliath. Instead of acting as a partner and looking for a compliant and feasible solution that would solve this situation in a way that is beneficial for all sides, online marketplaces are inflexible toward their sellers.

A simple solution that could be implemented in solving the current situation is for online marketplaces to request proof that sellers were submitting and paying their VAT in the UK on sales from 01.01.2021 (submitted VAT return statements and payment statements).

HMRC should step up and provide the statement, guidelines and grace period in which online marketplaces can provide the proof that their sellers have been paying UK VAT on the transactions from 01.01.2021 by themselves and that there is no need for the online marketplaces to collect the VAT on the transactions on which UK VAT has already been collected and paid by the sellers. Without this online sellers will be forced to double pay the VAT on the same transactions which is against good tax and business practice.

This is a complex and serious situation that requires urgent action from HMRC, online marketplaces and online sellers, as it could jeopardize many businesses to become insolvent.

This is also one more example of how complex VAT compliance in practice is. Be proactive by choosing the best technical solution and compliance management experts on the market. Become and stay compliant with ease.

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