Selling on Amazon? What Marketplace VAT Collection Means For Your Cash Flow

If your brand sells through Amazon, eBay, Temu or any other online marketplace, the way VAT works on those sales is about to change. From 1 October 2027, under a measure announced in the 2026 Budget, the marketplace, not you, will collect the VAT on your sales. Your prices and margins shouldn’t change, but your cash flow will.

What’s changing

Since 2021, marketplaces have collected VAT on sales by overseas sellers. The 2026 Budget extends this to UK businesses. The aim is to stop sellers, often shell companies, undercutting compliant businesses by not paying the VAT they owe. The government expects it to raise hundreds of millions of pounds a year, which will help fund business rates support for the high street.

Are you in scope?

The new rules apply to your sales on a marketplace if your UK business either:

• is VAT-registered, in which case all your qualifying marketplace sales are covered, or
• sells more than £90,000 a year on that platform, even if you’re not VAT-registered.

The £90,000 threshold applies to each platform separately. The new rules don’t cover:

• business-to-business sales,
• second-hand goods, which you’ll keep charging VAT on in the usual way,
• personal sales, such as someone selling their own clothes or belongings.

If you’re not VAT-registered and sell under £90,000 on each platform, nothing changes for your marketplace sales. Your normal VAT registration obligations still apply, though: if your total turnover across all channels goes over £90,000, you still need to register.

How it works

Today, when you sell a £120 item through a marketplace, the £120 price includes £20 of VAT. You collect that VAT, hold it until your next VAT return, then pay it to HMRC, minus any VAT you’ve paid on your own costs.

From October 2027, the law will treat each sale as two steps:

1. You sell to the marketplace, and that sale is treated as zero-rated. You charge no VAT.
2. The marketplace sells to the customer, charges the £20 VAT, and pays it to HMRC itself.

Your sale is still taxable, just at 0%, so you can still reclaim the VAT you pay on stock, packaging, software and other costs. But you’ll no longer have any output VAT on those sales to set it against.

The result: many marketplace sellers will move from paying VAT to HMRC to claiming it back. You lose the VAT you used to hold for a few weeks or months between sale and payment, and you wait for HMRC to repay the VAT on your costs.

To soften the blow, the government says you can apply to file VAT returns monthly instead of quarterly, so refunds arrive sooner. HMRC will publish detailed guidance on the accounting before October 2027.

A worked example

Imagine a VAT-registered consumer brand that, each quarter, sells £300,000 of products through Amazon (including VAT) and spends £150,000 plus VAT on stock, packaging and software. For simplicity, we’ve ignored marketplace fees and assumed all costs carry 20% VAT.

Each quarter	Today	From October 2027
VAT on £300,000 of marketplace sales	£50,000, collected by you	£0, collected by the marketplace
VAT paid on £150,000 of costs	£30,000	£30,000
Your VAT return	£20,000 to pay HMRC	£30,000 to reclaim from HMRC
Your cash until the VAT return is settled	£20,000 ahead	£30,000 out of pocket

The total tax is the same, and so is your profit. What changes is timing. The brand goes from holding £20,000 of HMRC’s money to waiting for £30,000 of its own. That’s a £50,000 swing in working capital every quarter, equal to the VAT on its marketplace sales.

Switching to monthly VAT returns would bring roughly £10,000 back each month instead of £30,000 a quarter, which shortens the wait but doesn’t remove it.

If you sell through more than one channel

Most brands don’t sell only on marketplaces. From October 2027, you’ll be treating sales differently depending on where they happen:

• Your own website, wholesale and retail: you charge and account for VAT as you do now.
• Marketplace sales in scope: the marketplace collects the VAT, and your sale to it is zero-rated.

That means more reconciliation work, and your bookkeeping and VAT software will need to tell the two apart. It also means the cash-flow swing depends on your channel mix. A brand selling mostly through its own site will barely notice; one selling mostly on Amazon will feel it sharply.

On the Flat Rate Scheme? The government hasn’t yet decided how the scheme will work alongside the new rules. If you use it, watch for HMRC’s guidance.

The upside

If you compete with sellers who don’t pay VAT, this should level the playing field. The government expects compliant businesses won’t need to raise prices, while sellers who’ve been undercutting by dodging VAT lose that advantage.

What to do now

1. Check whether you’re in scope. Are you VAT-registered, or selling over £90,000 on any one platform?
2. Model the cash-flow effect. Use your own figures for marketplace sales and VAT on costs, as in the example above, and plan how you’ll fund the gap from October 2027.
3. Consider monthly VAT returns. If you’ll be in a regular repayment position, monthly returns get refunds to you faster.
4. Get your systems ready. Make sure your bookkeeping can separate marketplace sales from other channels, and check what reports your marketplaces will provide.
5. Watch for HMRC’s guidance, especially if you use the Flat Rate Scheme.

Our Finance Office team helps consumer brands manage VAT and cash flow across every channel. Talk to us about modelling your position before October 2027.