Introduction
If you sell online — whether it’s through your own website, Etsy, Amazon, or anywhere else — at some point, you’re going to run into three little letters that can cause a lot of stress: VAT.
It’s one of those things every ecommerce business needs to deal with, but hardly anyone enjoys. When do you register? How much do you charge? What about customers overseas? It can all get confusing pretty fast.
So, if you’re scratching your head wondering how VAT actually works for UK ecommerce businesses — don’t worry, you’re definitely not alone. Let’s walk through it in plain English, without the jargon.
VAT in a Nutshell: What It Actually Is
Put simply, VAT (Value Added Tax) is a tax you add to the price of most goods and services you sell in the UK.
You collect it on behalf of HMRC — it’s not really “your” money. You charge your customers VAT, then later send that money off to HMRC (minus any VAT you’ve paid out on business costs).
Sounds simple enough, right? Well, it can get messy if you don’t keep on top of it — especially when you’re selling online across different platforms and countries.
That’s why loads of ecommerce businesses work with a specialist in ecommerce accounting services to get it all running smoothly.
When You Need to Register for VAT
Here’s the basic rule:
If your total taxable turnover in the last 12 months hits £90,000, you must register for VAT.
It’s not optional. HMRC expects you to start charging VAT on your sales once you pass the threshold — and there are penalties if you don’t.
👉🏻 Important: taxable turnover is all your sales — not just your profits.
Some businesses even register voluntarily before they hit £90,000. Why?
- It looks more professional when dealing with suppliers and customers.
- You can reclaim VAT on business purchases (which can save you money).
- It’s one less thing to panic about later when you’re growing fast.
Charging VAT on Your Sales
Once you’re registered, you’ll need to:
- Add VAT (normally 20%) to most of your product prices.
- Give VAT invoices to customers (especially important for business clients).
- Send VAT returns every quarter (or sometimes monthly) showing how much VAT you collected and how much you’re reclaiming.
Sounds straightforward — until you start selling overseas, offering digital products, or working with fulfilment warehouses abroad.
That’s when VAT gets… interesting.
Selling Abroad? Here’s Where It Gets Tricky
If you sell physical products outside the UK, you usually don’t charge UK VAT on those orders — but the customer might have to pay local taxes when their parcel arrives.
(Yes, Brexit made this even messier. And yes, you need to keep good records.)
If you sell digital products — like ebooks, downloads, online courses — it’s a whole different set of rules called VAT OSS.
You may have to charge VAT based on where the buyer lives, not where you are.
Bottom line: if you’re selling internationally, it’s really worth having an accountant who knows how ecommerce VAT works across borders. Trust me.
VAT Schemes That Might Save You Time (And Money)
HMRC offers a few schemes that make life a bit easier for small businesses:
- Flat Rate Scheme: Pay a fixed percentage of your sales as VAT, instead of working out VAT on every single transaction.
- Cash Accounting Scheme: Only pay VAT once you actually get paid (good if customers are slow payers).
- Annual Accounting Scheme: Just one VAT return a year, with advance payments spread across the year.
Each has its pros and cons, depending on your turnover, margins, and cash flow. It’s worth getting advice before you choose one.
Common VAT Mistakes Ecommerce Sellers Make
Here’s what trips up a lot of businesses:
- Forgetting to register when they hit the £90k threshold
- Charging VAT incorrectly (some items have reduced or zero rates)
- Not keeping proper invoices and records
- Missing VAT deadlines and racking up fines
- Forgetting about VAT when pricing products — and eating into their profits
All easily avoidable if you set things up right from the start.
Working with someone who handles business tax every day can save you from some very expensive headaches later on.
Why You Shouldn’t DIY VAT If You’re Serious About Your Business
The truth is, the rules aren’t always clear — and when you add multiple sales channels, international orders, and different VAT rates into the mix, things can get complicated fast.
A good ecommerce accountant will:
- Register you properly and handle your VAT set-up
- Help you choose the best VAT scheme
- Keep track of your VAT deadlines and submissions
- Make sure you’re claiming back all the VAT you’re entitled to
At Centralyze Accounting, we work with online businesses every day. We know the VAT traps — and how to avoid them.
Final Thoughts
If you’re running an ecommerce business in the UK, VAT is something you need to take seriously. But it doesn’t have to be complicated or stressful.
Get good advice, keep good records, and sort your VAT properly — and you’ll have one less thing to worry about as you grow. Need some help making sense of VAT?
Book a free consultation with Centralyze Accounting — we’ll make sure everything’s set up right, and you stay on HMRC’s good side.