VAT for UK Amazon and Shopify Sellers: What You Need to Get Right
VAT is where online sellers most often get caught out. The rules are not unusually difficult, but marketplace reports are not built around them, so the right figures do not appear anywhere by themselves.
Here is what a UK-based Amazon or Shopify seller needs to get right. Selling into other countries brings extra rules, which we cover briefly at the end.
When you need to register
You must register for VAT if your VAT-taxable turnover in the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. It is a rolling 12 months, checked every month, not your accounting year.
It is taxable turnover, which is not the same as everything that came in. Standard-rated, reduced-rated and zero-rated sales all count towards it — a zero-rated seller can be required to register despite charging no VAT — while exempt and out-of-scope supplies are treated differently. Valid refunds and credit notes come off.
Turnover means your sales, not what Amazon or Shopify pays you. A seller whose payouts total £70,000 can easily have taxable turnover well above £90,000, and that is one of the most common ways sellers end up registering late.
The reason is that fees and advertising are costs. Amazon deducts them before paying you, but they do not reduce your sales, so a payout is always smaller than the turnover behind it. Refunds are different and should not be treated the same way. A genuine refund or cancellation of a taxable sale reduces your taxable turnover, so it is not simply added back when you work the figure out. What you need is your actual sales for the period, less genuine refunds and credits — not your payouts with every deduction reversed.
Businesses established outside the UK do not get the £90,000 threshold and must register as soon as they make taxable UK supplies. Marketplace sales can work differently, though. Where the deemed-supplier rules below apply, the overseas seller is treated as making a zero-rated supply to the marketplace rather than a sale to the customer, and the registration position can change as a result. An overseas seller whose UK sales all run through a marketplace is in a different position from one selling direct.
It goes further than that. An overseas business making only those zero-rated supplies can apply to HMRC for exemption from registration. Many still choose to register, because registering is what lets them reclaim import VAT, and a business in that position is often in a net repayment position anyway. The exemption also has to be watched: if the nature of the supplies changes — a sale to a UK VAT-registered business can do it — HMRC must be told within 30 days.
Your sales prices include VAT
For a VAT-registered UK seller whose goods are already in the UK, and where the seller rather than the marketplace accounts for the VAT, the price the customer pays includes VAT. On a VAT-inclusive £24 sale at the standard rate, £4 is VAT that belongs to HMRC and £20 is your sale.
That example is standard-rated goods at 20%. Check the rate that actually applies to what you sell before using it. Zero-rated goods — most books, most food, children’s clothing — carry no VAT at all, so the whole £24 would be your sale, and reduced-rate goods carry 5%. Taking 20% out of a zero-rated sale understates your income by a sixth, which is as damaging as leaving VAT in a standard-rated one.
The settlement report and the Shopify payout show the full amount. The VAT has to be worked out and separated in your bookkeeping. If the sale is recorded at £24, your income is overstated, and the VAT return will be wrong.
Marketplaces sometimes collect the VAT for you
In two situations the marketplace, not the seller, accounts for the VAT on a sale to a UK consumer:
- When the seller is established outside the UK and the goods are already in the UK
- When goods worth £135 or less are sent from outside the UK directly to the customer
The £135 test applies to the whole consignment, not to each item in it, and it is based on the goods’ intrinsic value, leaving out transport, insurance and taxes. Northern Ireland has separate arrangements.
For a UK-established seller selling stock held in the UK, the seller accounts for the VAT. Knowing which applies to each sale matters, because it changes what goes on your VAT return.
Business customers are an exception, but the two situations above do not work the same way and it is worth not running them together.
- Goods sent from outside the UK in a consignment of £135 or less. If the buyer is UK VAT registered and gives the marketplace its VAT number, the marketplace does not account for the VAT. The business customer accounts for it under the reverse charge, and the invoice will usually say so.
- Goods already in the UK, sold by an overseas seller. Here it is not a reverse charge. The marketplace passes the sale details, including the customer’s VAT number, to the seller, and the overseas seller is liable to account for the VAT on that sale.
So where the goods are, where the seller is established and what kind of customer is buying all change the answer. Northern Ireland has its own arrangements again.
If you sell through your own Shopify store, none of this applies to those sales. They are sales made by your business directly to the customer, and the VAT is yours to account for. Shopify Payments processing the money does not make Shopify a deemed supplier. This catches out sellers who assume any platform handling the payment must also be handling the VAT. Shopify payouts explained covers how those payouts are made up.
VAT on Amazon’s and Shopify’s fees
The settlement report and the Shopify payout do not show the VAT treatment of fees in a form you can use for a VAT return. Go to the platforms’ own invoices instead: Amazon’s in Seller Central’s Tax Document Library, and Shopify’s bills in the admin area. Check that they show your business name and VAT number.
Do not assume every charge is treated the same way. Amazon changed how it invoices UK sellers in August 2024, so fees that were previously handled under the reverse charge now commonly carry UK VAT at 20% that you reclaim as input tax. Even then it is not uniform: fulfilment fees on internationally shipped orders can be zero-rated and appear on a separate invoice. The supplier, the nature of the service and the place of supply all affect the treatment, so the invoice decides it, not an assumption.
Shopify works the other way round, because it supplies from outside the UK. If you enter your UK VAT number in your Shopify admin, Shopify normally stops charging UK VAT on its platform fees and the reverse charge applies instead: you account for the VAT as both output and input tax on your own return, which usually nets to nothing. If you have not given them a VAT number, Shopify charges 20% UK VAT and, if you are not registered, you cannot reclaim it. So entering the number is worth doing, and worth checking afterwards on the next bill.
Shopify Payments processing fees are a separate matter from the platform fee, and Shopify’s own documentation states that a 0% rate applies to UK merchants as a reverse charge. So those fees are not an invoice carrying reclaimable UK VAT, and treating them as though they were would overstate your input tax. A VAT-registered business accounts for them under the reverse-charge rules instead.
Shopify bills several different things — subscription, payment processing, third-party gateway fees, apps, shipping labels — and they do not all share one treatment. Work from the invoice for each, and keep them.
Import VAT
If you import goods, import VAT is due. Many VAT-registered importers use postponed VAT accounting where the conditions are met, but it is an option rather than something that happens automatically, and it has to be declared on the customs entry. Where it is used, the import VAT is declared and, subject to the normal input tax rules, reclaimed on the same return, so there is no cash cost at the border. You need HMRC’s monthly postponed import VAT statement to complete the return correctly.
Import duty is different. It is not reclaimable and forms part of the cost of your stock.
Records you will need
- Settlement reports and payout reports for every period
- Amazon’s VAT Transactions Report, if you use it
- Fee invoices from each platform
- Purchase invoices and import documents
- Postponed import VAT statements
- Sales invoices and credit notes, where you issue them
- Evidence of refunds and cancellations
- Import declarations and C79 certificates
- Records supporting reverse-charge transactions
- Overseas VAT registrations and invoices, if you sell or hold stock abroad
The settlement report is where most of this starts, and it repays knowing properly: our line-by-line guide explains what each line is and which ones carry VAT consequences.
Most VAT-registered businesses must keep digital records and file their returns through Making Tax Digital compatible software, unless an exemption applies.
Selling outside the UK
Storing stock in other countries, for example through Amazon’s Pan-European FBA, usually means registering for VAT in each country where stock is held. Selling to EU consumers from the UK brings EU import VAT rules. Moving stock abroad can also bring local registrations, import VAT, customs obligations and the EU’s One Stop Shop and Import One Stop Shop schemes into play at the same time, and moving your own stock between countries can create reporting obligations of its own. These are worth planning before you switch the programme on, not after.
Common mistakes
- Checking the threshold on payouts instead of sales
- Recording sales including VAT
- Claiming VAT on fees from the settlement report instead of the invoices
- Forgetting import VAT, or adding it to stock cost when it is reclaimable
- Choosing the Flat Rate Scheme without checking whether it suits a goods business
Next: HMRC now receives your sales data directly from the marketplaces — see what HMRC gets from Amazon, eBay and Etsy.
If you would rather hand the quarterly work over, see our VAT returns service.
If you are close to the threshold, already registered and unsure whether your returns are right, or planning to sell abroad, book a consultation. It is much easier to set this up correctly than to correct several quarters later.
