Complete guide to VAT for e-commerce entrepreneurs (2023 edition)

Andrea Piacquadio
complete guide to vat for e-commerce - man at desk

Welcome to our complete guide to VAT for e-commerce entrepreneurs. VAT is often considered a trepidatious area, but we’re here to clear up matters once and for all and give you all the information you need to make the right decisions.

E-commerce entrepreneurs often start as solopreneurs and that leads to them wearing many different hats. This may be your first business, and if that’s the case, you may feel overwhelmed by the needs of your business. You are its sales team, marketer, and accountant.

Use this guide whenever you have a VAT headache. We will be covering the basics but also giving you information on when to register, what VAT scheme is best for your business and the upcoming legislature.

VAT basics

What is VAT?

VAT is short for Value Added Tax. We pay VAT every time we purchase goods from a VAT-registered business, whether through a business or for personal purposes. The current VAT standard rate is 20% and has been at this rate since 2011. When a business registers for VAT, either voluntarily or because they have hit the VAT threshold, which is frozen at £85,000 until March 2024, and are required to do so, you can claim back VAT on purchases, but you must also charge your customers VAT and pay the difference between the two amounts as tax.

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VAT gets paid to HM Revenue and Customs (HMRC) and its purpose is to generate tax revenues for the government. It is similar to corporate income tax and personal income tax.

VAT Rates

As mentioned above, the standard VAT rate is 20% but many goods fall outside of this remit. Some goods fall under the reduced rate of 5%, while others, such as children’s clothes, are zero-rated. Postage and property transactions are exempt from VAT. To ascertain which category your goods fall under, please check the HMRC guidance or get in touch with our team.

VAT Registration

You can register your e-commerce business for VAT voluntarily at any time or wait until you are required to do so:

When you register, you will need to choose between the available VAT schemes:

Some more reading on VAT basics:

Complete Guide to VAT for e-commerce - lady at desk

VAT submission

Since 2019 all VAT returns have been required to be submitted digitally through a Making Tax Digital (MTD) approved portal such as Xero:

You can choose to submit your VAT return yourself or do so through your accountant:

When MTD was introduced in 2019, it was only mandatory for businesses who exceed the VAT threshold. However, since April 2022, any VAT-registered business must comply with the MTD requirements and regulations.

VAT on e-commerce expenses

VAT on e-commerce expenses can be tricky. You may be importing stock, you may be selling internationally, and you will likely be using international apps and platforms such as Shopify and Amazon FBA. At times it may feel like each expense has its own rules, but if you ever need clarification on a particular expense, our team are there to help:


Other Expenses:

Some platforms are responsible for collecting and submitting your VAT from sales, however not all are, and those that do, are not always responsible for collecting all UK VAT. Platforms such as Amazon will collection VAT in particular scenarios, but you are generally still liable.

VAT in other countries

Few e-commerce businesses deal solely with the UK. Even those who sell exclusively to the UK are likely to import goods from another nation. International VAT can be tricky to navigate so please ensure you get help if you need it, to avoid penalties that could be detrimental to your business if you fail to comply.


American Sales Tax:

Other International VAT reading:

Next Steps

We hope you have found everything you needed to know about VAT for e-commerce. If you are looking for more guidance regarding VAT for your e-commerce business, or want to start accounting for growth, get in touch with our team of dedicated e-commerce accountants.

The best time to start is now contact your e-commerce accountant.

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