What’s Proposed in the 2026 Consultation
A consultation launched on 23 June 2026 seeks to extend VAT liability for online marketplaces so that UK platforms are responsible for VAT on sales they facilitate for UK businesses, including domestic sales—retail goods, takeaways, etc. Currently, liability is limited to sales by overseas sellers. (gov.uk) The government is considering two options to reduce burdens:
- Apply only where a UK business sells via marketplace above a threshold (Minimum Platform Threshold).
- Provide VAT relief for UK businesses below the VAT registration threshold. (gov.uk)
Who’s Affected
| Entity | Impact |
|---|---|
| UK businesses selling via marketplaces | May see VAT being collected/paid on their behalf by the marketplace; changes to cashflow and record-keeping expected. |
| Marketplaces/app platforms | Increased responsibility, greater compliance costs, possibly acting as tax collector. |
| Businesses not VAT-registered yet | Likely reliefs or exemptions may be proposed to avoid penalising smaller sellers. |
Example Scenario
An Etsy-style platform: Jane, a UK business, sells handmade goods through an online marketplace. Under the proposed regulations, the platform may become liable for VAT payable, even if Jane isn’t registered. If this pushes responsibility onto the platform, they may adjust their terms, or refuse sellers under VAT registration. Jane may end up required to register or ensure her sales structured to avoid extra burdens.
Compliance and Operational Implications
- Review platform contracts—seek clarity on who bears VAT liability.
- Improve financial and accounting systems, particularly how VAT is tracked per item and marketplace sale.
- Factor thresholds: businesses just below VAT registration may need to organise their sales to stay under thresholds or prepare for registration.
- Engage in the consultation if you’re affected—this policy isn’t yet law. Comments due by 18 August 2026. (gov.uk)
What UK-Based Sellers and Platforms Should Do Now
- Collect data on marketplace sales volumes.
- Estimate VAT liability under proposed rules for your business.
- Check if you’ll be above the threshold and prepare to register.
- Evaluate pricing strategies: increased VAT responsibilities may shrink margins.
The Bigger Picture for Digital Trade
These rules signal a shift toward making online and high-street retail compete on equal footing regarding tax. Platforms may be more involved in tax collection—a trend for simplifying compliance but raising responsibility. Sellers should monitor legislative progress and ensure systems are ready ahead of implementation.