VAT for Ecommerce and Digital Services
Online businesses can create VAT obligations in countries where they have no office and no employees.
The answer depends on where customers are located, whether they are businesses or consumers, where stock is held and whether Amazon, eBay or another marketplace is responsible for accounting for the VAT.
We help ecommerce and digital businesses establish the correct VAT treatment, reconcile marketplace transactions and fix historic errors.
How we can help
- UK VAT registration for overseas sellers
- Amazon and marketplace VAT reviews
- Shopify and direct ecommerce sales
- UK fulfilment stock
- Marketplace deemed-supplier rules
- £135 low-value import rules
- Import VAT and postponed VAT accounting
- Digital services place-of-supply reviews
- EU OSS and IOSS
- Ecommerce VAT reconciliations
- Historic VAT corrections
- VAT return preparation
- Overseas VAT coordination
Overseas businesses selling into the UK
But ecommerce transactions need to be analysed before reaching that conclusion. We look at:
- where the stock is located
- how the goods reach the customer
- whether sales are direct or through a marketplace
- whether the customer is a business or consumer
- who acts as importer
- who is legally responsible for the VAT
A seller with stock in a UK fulfilment warehouse can have a very different VAT position from the same seller shipping each order directly from overseas.
Amazon and online marketplaces
Marketplace VAT is frequently misunderstood because the amount paid into the bank is not the same thing as VAT turnover. A settlement may contain:
- Customer sales
- VAT collected by the marketplace
- Refunds
- Commissions
- Fulfilment fees
- Advertising
- Storage charges
- Foreign exchange adjustments
- Other deductions
We reconcile the marketplace data to the accounting system and VAT returns rather than treating the net bank receipt as sales.
When the marketplace accounts for VAT
For certain transactions, the marketplace is treated as the supplier to the customer and accounts for the customer-facing VAT. This commonly affects:
- certain goods already located in the UK and owned by an overseas seller
- certain imported consignments worth £135 or less
The overseas seller may still have its own VAT transactions and registration obligations.
A common error is accounting for VAT again on a sale where the marketplace has already accounted for it. The opposite error is assuming that because Amazon collected VAT, the seller has no UK VAT obligations at all.
We establish which party is responsible transaction by transaction.
UK stock and fulfilment centres
Holding stock in the UK can create a VAT obligation even where the business itself is based overseas. That can include stock held with:
- Amazon FBA
- a third-party fulfilment provider
- a UK warehouse
- a logistics provider
We review both the movement of the stock into the UK and the subsequent sales. This includes VAT registration, import VAT recovery, postponed VAT accounting, deemed supplies to marketplaces, direct sales, B2B transactions and marketplace versus seller VAT.
For overseas sellers, registration can also be useful commercially where it allows recovery of UK import VAT and other qualifying UK costs.
The £135 import rule
Depending on how the sale is made:
- the overseas seller may have to charge UK VAT at checkout
- an online marketplace may be responsible for the VAT
- different rules can apply where the customer is a UK VAT-registered business
For consignments above £135, the normal import VAT and customs rules generally become relevant instead. We review the full sales flow rather than applying the £135 rule to individual invoices in isolation.
Digital services
VAT on digital services depends heavily on whether the customer is a business or consumer.
B2B digital services
For many cross-border B2B services, the place of supply follows the business customer. UK VAT will therefore often not be charged to an overseas business customer, with the customer accounting for VAT locally under the reverse charge where applicable. Customer business status needs to be supported by appropriate evidence.
B2C digital services
For qualifying digital services supplied to consumers, VAT normally follows the customer’s location. That can create VAT obligations outside the UK even where the supplier has no physical presence there.
We help businesses determine:
- whether the product is actually a digital service for VAT
- customer business or consumer status
- customer location
- VAT rates
- EU OSS reporting
- accounting-system configuration
Is your service actually digital?
Not everything delivered online is an electronically supplied service. The key distinction is the level of human involvement.
Examples that can fall within digital-service rules include:
- software subscriptions
- downloadable software
- streaming
- hosting
- ebooks
- automated online courses
- digital content
A live training course, consulting session or professional service delivered by a person generally does not become a digital service simply because it is delivered through Zoom or email.
Businesses selling a mixture of automated subscriptions and human services often need to separate the VAT treatment.
EU OSS and IOSS
UK businesses selling into the EU may be able to simplify their VAT reporting through the EU’s One Stop Shop systems.
Non-Union OSS
A UK business supplying qualifying B2C services into EU member states can use Non-Union OSS to declare VAT due in multiple countries through a single EU registration. It does not change which country’s VAT is due — it simplifies the reporting.
IOSS
Depending on the circumstances, a UK business may need an EU-established intermediary to use the scheme. We can review whether OSS or IOSS is appropriate and work with local advisers where an EU registration or intermediary is required.
Ecommerce VAT reconciliations
For many ecommerce businesses, the VAT problem is not knowing the rules. It is getting the accounting data to match them. We help reconcile:
- Shopify
- Amazon
- Marketplace settlements
- Stripe and payment processors
- Fulfilment systems
- Accounting software
- Import VAT records
- OSS/IOSS reports
- VAT returns
The objective is to create a repeatable process rather than reconstructing the transactions manually every quarter.
Historic VAT reviews
We can review historic ecommerce VAT where you suspect the treatment has been wrong. Common issues include:
- Marketplace VAT declared twice
- UK VAT registration started too late
- Overseas stock not identified
- Import VAT not recovered
- £135 rules applied incorrectly
- B2B and B2C sales mixed together
- Marketplace and direct sales treated identically
- Digital services taxed in the wrong jurisdiction
- OSS/IOSS data not reconciled to the accounts
Where an error is identified, we quantify it first and then determine the appropriate correction or disclosure procedure.
Who we work with
- Amazon sellers
- Shopify businesses
- Overseas ecommerce businesses entering the UK
- UK businesses selling internationally
- Subscription businesses
- SaaS businesses
- Online education providers
- Marketplaces and platforms
- Fulfilment and logistics businesses
Frequently asked questions
Related reading
- VAT on services supplied from the UK to overseas customersHow place of supply works for cross-border services.
- VAT registration for a new limited companyWhen to register and what to weigh up first.
- Import and export VATPostponed VAT accounting, import VAT recovery and evidence of export.
- All VAT servicesRegistration, returns, scheme selection and HMRC enquiries.
Back to all VAT services.
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