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Posted: Tue 30th Jun 2026
6 min read
If you sell online and follow the rules, you have probably watched rivals undercut you on price by dodging VAT.
The government has just opened a consultation on closing that gap. It is a change we campaigned for, and it is good news for compliant small sellers.
Since 2021, online marketplaces have had to collect VAT on sales by overseas sellers. They do not have to do the same for UK-based sellers, who account for their own VAT.
Some bad actors exploit the gap. They pose as UK-based to avoid VAT, then undercut honest firms by up to 20% on price.
The methods vary. Sellers misdeclare where they are based, spread sales across platforms to stay under the VAT threshold, or register, reclaim VAT, then dissolve the business before paying.
HMRC estimates that tens of thousands of UK businesses trading through marketplaces are not meeting their VAT obligations. It says this could be costing the Exchequer hundreds of millions of pounds a year.
In our Budget submission to HM Treasury, we asked for a clean, deliverable fix. We then joined an industry coalition that wrote to the Treasury to consult on it.
Our ask was simple. Extend the liability that already applies to overseas sellers so it covers UK sellers too, and close the loophole for good.
However, Enterprise Nation member, Amos Beer, points out a real cunnndrum:
"It would certainly level the playing field, although I struggle to see how they can do this with foreign companies.
"Also, it goes against the grain when combating cost-of-living costs."
The consultation, published on 23 June, proposes exactly that. Marketplaces would account for the VAT on sales by UK businesses, rather than you doing it yourself.
There is no new VAT rate and no change to what is taxable. Zero-rated goods stay zero-rated. The platform handles the VAT, not the seller.
Enterprise Nation member, Alan Duval, states:
"If they're selling through marketplaces and aren't registered for VAT, the marketplace can add VAT at POS and pay the tax without the overseas entity needing to be involved at all.
"If anything, that's a simpler approach than requiring VAT registration, especially given the farcical situation with overseas companies using the temporary VAT address (Ruby House) as a way to imply they have a UK base."
If you are VAT registered, this is worth noting early. The VAT you currently hold before paying HMRC would instead be collected by the platform, which has a cash flow effect that the consultation wants to understand.
We were clear that any fix must protect genuine micro businesses, not just catch fraud. The consultation reflects that.
The lead option is a minimum platform threshold of £90,000, the current VAT registration threshold. Only sales above that on a given platform would be caught.
The government is also weighing a VAT rate relief for firms below the threshold. Sales by people who are not in business stay out of scope. The government is also consulting on how to treat second-hand goods sold by businesses, including the option of leaving them out.
VIDEO: VAT essentials every business needs to know
Chartered accountant Sean Hookins takes you through the basics of VAT registration requirements for small businesses, breaking down the VAT essentials every start-up needs to know:
This is about fair competition. If the reform works, you compete on product and service, not on who is willing to break the rules. It also removes confusion at checkout, as clear platform liability means fewer disputes and less admin.
Most importantly, it strengthens confidence in omnichannel sales. Marketplaces are crucial to the growth of many small firms.
According to a government survey, 54% of retailers reported using eBay, and among those selling on multiple platforms, 70% use eBay. A simpler VAT system would make those routes to customers even stronger.
There is a wider win too. The Treasury has committed to putting any revenue raised into improving business rates for the high street.
The consultation is open until 18 August. If you sell on marketplaces, your experience carries real weight with officials.
You can respond through the consultation page. We will be submitting our own response, and we want it to reflect what our members are seeing on the ground.
Although the consultation is focused on the VAT loophole, Enterprise Nation member Kevin Johnston hopes the government goes further:
"It would be good if they could also look at the loophole of duty and charge them the correct duty as their goods come into the country when manufactured in China."
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