How Does VAT Work on Amazon and eBay Sales

Selling on Amazon or eBay can be a great way to build an online business although VAT is one of the areas that causes the most confusion. I have seen countless sellers underestimate how VAT works on marketplace sales because platforms like Amazon and eBay automate so much of the selling process that people assume VAT is handled automatically too. In reality the rules for VAT on marketplace sales are specific, detailed and often misunderstood. Whether you sell as a sole trader, a limited company or a side hustle the VAT obligations fall on you once you pass the thresholds or meet certain conditions.

This guide explains exactly how VAT works when you sell goods on Amazon or eBay in the UK. You will learn when you need to register, how VAT applies to UK sales, how marketplace rules changed in 2021, how overseas sales are treated, how Amazon handles VAT for overseas sellers, how to calculate VAT on your selling price, how marketplace fees affect VAT and what to do if you import products from abroad. I will also include practical examples because VAT becomes much clearer once you see how it applies in real situations.

By the end you will understand how VAT works on marketplace sales and what you must do to stay compliant.

Why VAT on Amazon and eBay Is Different From Other Sales

VAT on marketplace sales is more complex because:

• Amazon and eBay act as marketplaces rather than retailers

• Sellers can be UK based or overseas

• Goods may be stored in the UK or outside the UK

• Orders may be fulfilled through FBA or FBM

• Marketplaces must collect VAT in some situations

• Sellers must collect VAT in others

• Import VAT and customs rules overlap with VAT on sales

In my opinion marketplace VAT is easier once you understand who is responsible for VAT in each scenario. You are not always the one collecting it although you are always responsible for your VAT registration obligations.

When You Must Register for VAT as an Amazon or eBay Seller

You must register for VAT if you meet any of the following:

• Your UK taxable turnover exceeds £90,000 in a rolling 12 month period

• You expect your turnover to go above £90,000 in the next 30 days

• You store goods for sale in the UK if you are a non UK seller

• You sell goods located in the UK at the point of sale

• You move goods between Northern Ireland and the EU

• You import goods into the UK and sell them to UK customers

• You choose to register voluntarily

Most marketplace sellers reach the threshold quickly because turnover means sales, not profit.

Types of Amazon and eBay Sales and How VAT Applies

There are several types of sales and each has its own VAT position.

1. UK seller selling goods already in the UK

VAT rules:

• You must charge UK VAT once registered

• You account for VAT through your VAT return

• Amazon or eBay do not collect VAT for you

• You must add VAT to the selling price or absorb the cost

Most small UK sellers fall into this category.

2. UK seller importing goods from overseas then selling them in the UK

VAT rules:

• You pay import VAT at the border

• You reclaim the import VAT on your VAT return

• You charge VAT when selling the goods

• Your sale is a standard UK domestic sale

This applies whether you use FBA, FBM or a third party warehouse.

3. Overseas seller selling goods stored in the UK

VAT rules:

• You must register for VAT from your first sale

• Amazon or eBay may collect VAT if you fail to register

• Marketplaces can be held jointly liable if you do not comply

4. Selling goods located outside the UK and delivered to UK customers

VAT rules depend on value:

• Goods under £135: VAT is collected at the point of sale

• Goods over £135: import VAT is collected at the border

• Marketplaces are responsible for VAT collection on consignments under £135

This rule changed in 2021 and significantly affects sellers who drop ship from abroad.

5. Selling goods to EU customers

After Brexit VAT rules depend on:

• Where the goods start

• The value of the goods

• Who is the importer

• Whether you use Amazon Pan EU or EFN

Selling to the EU often requires separate VAT registrations.

VAT Responsibilities for Amazon and eBay Sellers

Your responsibilities depend on how and where you sell.

You must:

• Register for VAT if required

• Charge VAT on applicable sales

• Issue VAT invoices when requested

• File VAT returns

• Keep digital records under MTD rules

• Pay VAT to HMRC

• Reclaim eligible VAT on expenses and imports

• Understand marketplace VAT reporting

Amazon and eBay do not submit VAT returns for you. They only collect VAT in specific circumstances.

How VAT Works on Amazon Sales (FBA and FBM)

Amazon sellers fall into two categories:

1. FBA (Fulfilment by Amazon)

You send inventory to Amazon’s warehouse.

VAT rules:

• If goods are stored in the UK you must follow UK VAT rules

• If goods are stored in the EU you may need EU VAT registration

• Amazon charges VAT on its fees

• Amazon does not automatically charge VAT on your sales

Amazon provides:

• VAT transaction reports

• Fee invoices

• Evidence of marketplace VAT collection (where applicable)

2. FBM (Fulfilled by Merchant)

You store the goods and fulfil orders yourself.

VAT rules:

• You charge VAT on sales if registered

• You reclaim VAT on eligible expenses

• Amazon fees include VAT that you can reclaim if registered

In my opinion VAT is easier for FBM sellers because the goods stay in one country.

How VAT Works on eBay Sales

eBay’s role is similar to Amazon although with fewer fulfilment options.

Key VAT points:

• eBay charges VAT on seller fees

• Sellers must charge VAT on sales once registered

• eBay collects VAT on goods under £135 sold from overseas to UK customers

• eBay reports collected VAT to HMRC

You must provide:

• VAT invoices when requested

• Your VAT number on listings (optional but recommended)

• Correct pricing that includes VAT if you are VAT registered

The £135 Import Rule Explained

Since 2021 there is no import VAT at the border for consignments valued under £135.

Instead:

• VAT is collected at the point of sale

• Marketplaces like Amazon and eBay collect the VAT

• Sellers receive payment net of VAT

• Sellers must not charge VAT on these sales

This rule applies when:

• Goods are located outside the UK at the time of sale

• Goods are sold to UK customers

• Consignment value is under £135 per order

This rule does not apply to goods over £135.

How VAT Works on Goods Over £135

• Import VAT is due at the border

• Seller or customer pays import VAT depending on incoterms

• Seller can reclaim import VAT if they are the importer of record

• Once the goods enter the UK the onward sale is subject to UK VAT

This applies to both Amazon and eBay sales.

VAT on Marketplace Fees

Amazon and eBay both charge VAT on their fees.

You can reclaim VAT on:

• Final value fees

• Listing fees

• FBA fees

• Advertising fees

• Subscription fees

You can reclaim this VAT only if:

• You are VAT registered

• The expenses relate to taxable sales

In my opinion many sellers overpay VAT simply because they do not download fee invoices each month.

How VAT Affects Your Selling Price

Once VAT registered you must decide whether to:

• List prices including VAT

• Add VAT on top of your selling price

This decision affects:

• Profit margin

• Competitiveness

• Buy box success on Amazon

• Final price shown on eBay

Example

Selling price: £20
VAT at 20 percent: £3.33
Net sale: £16.67

If you keep the selling price the same after registering you absorb the VAT and reduce profit.

VAT on Returns and Refunds

If you refund a customer:

• You must adjust your VAT records

• You can reclaim VAT on refunded items

• Marketplaces may adjust their commission

You must keep:

• Refund invoices

• Amazon or eBay refund reports

VAT on Digital Products Sold on Amazon or eBay

If you sell digital goods or eBooks through Amazon or eBay:

• VAT may be due based on the customer’s location

• The VAT rates differ by country

• The VAT One Stop Shop (OSS) may apply

• Amazon may handle VAT on Kindle eBooks

Import VAT and Customs for Amazon and eBay Sellers

If you import goods to sell you must understand:

• Import VAT

• Customs duty

• EORI numbers

• Declarations

• Freight forwarder invoices

You can reclaim import VAT if:

• You are VAT registered

• You are the importer of record

• Your name appears on HMRC’s C79 certificate

How to File VAT When Selling on Amazon or eBay

You must:

• Use MTD compliant software

• Record sales and purchases digitally

• Include sales in Box 1

• Include purchases in Box 4

• Include total sales in Box 6

• Include total purchase value in Box 7

If Amazon collects VAT for you:

• Marketplace collected VAT should not be included in Box 1

• You still include gross income in Box 6

Partial Exemption for Sellers With Mixed Supplies

If you sell:

• Goods subject to VAT

• Zero rated goods

• VAT exempt goods

you may be classed as partially exempt.

This can complicate your VAT return.

Real World Examples

Example 1: UK seller below threshold

• You sell £40,000 per year

• You do not register for VAT

• You do not charge VAT

• You do not reclaim VAT on expenses

• Amazon fees include VAT you cannot reclaim

Example 2: UK seller above threshold

• You pass £90,000 turnover

• You register for VAT

• All UK sales are subject to VAT

• You can reclaim VAT on imports and fees

Example 3: Overseas seller storing goods in the UK

• Goods stored in UK Amazon warehouse

• You must register for VAT from the first sale

• Amazon will require your VAT registration details

Example 4: Dropshipping under £135 rule

• Goods sent from China to UK customer

• Value £65

• eBay collects VAT at checkout

• You ship goods with VAT paid

• You do not account for VAT on your VAT return

Example 5: Selling to EU customers

• You ship from the UK

• Customer pays import VAT in their country

• Sale is zero rated export

• You must keep proof of export

Common VAT Mistakes Amazon and eBay Sellers Make

• Failing to register for VAT on time

• Thinking marketplace VAT collection covers everything

• Absorbing VAT without adjusting prices

• Not reclaiming VAT on Amazon and eBay fees

• Using incorrect VAT rates

• Forgetting the £135 import rule

• Misclassifying marketplace collected VAT

• Mixing business and personal purchases

• Not keeping digital records

• Not claiming import VAT correctly

In my opinion the biggest mistake is assuming being “small” means VAT does not matter. Marketplaces scale quickly and VAT liabilities come faster than expected.

Conclusion

VAT for Amazon and eBay sellers depends on where your goods are located, where your customers are based, how your goods are fulfilled and whether you pass the VAT registration threshold. Understanding the rules around UK sales, import VAT, the £135 threshold, marketplace VAT collection and reclaiming VAT on fees is essential for running a profitable online business. With the right setup you can avoid penalties, improve margins and build a VAT compliant selling operation.

In my opinion every marketplace seller should understand VAT before they scale because once your turnover increases VAT has a major impact on pricing and profitability.