Extending VAT online marketplace liability to combat non-compliance

Question 1

Summary

Accepted Answer

Subject of this consultation

A proposal to extend current online marketplace (OMP) VAT liability rules to sales on Online Marketplaces (OMPs) by UK based businesses, when their goods are situated in the UK at the point of sale.

Scope of this consultation

This consultation seeks views on the design of the policy and its practical implications, including options to mitigate the effects of the policy for the majority of small UK businesses.

This consultation is split into 7 main sections:

Chapter 1 is a foreword by Dan Tomlinson MP, Exchequer Secretary to the Treasury.

Chapter 2 is an executive summary.

Chapter 3 introduces the policy problem we are seeking to address.

Chapter 4 seeks information on respondents to the consultation and their experience.

Chapter 5 looks at the current rules of online marketplace liability and options for extension.

Chapter 6 invites views on administration and business impacts for online marketplaces and their users.

Chapter 7 gives a summary of consultation questions.

Who should read this

This consultation will be of direct interest to online marketplaces, along with any UK-based business that uses an online marketplace to sell goods and generate a business income.

This includes online marketplaces that can otherwise be described as online takeaway food delivery platforms, and restaurants, fast food kitchens and takeaway outlets that use those platforms.

Views are also welcome from private non-business sellers, although individuals making sales on online marketplaces who are not in business will not be in scope of the proposed policy changes.

The consultation may be of general interest to UK consumers and anyone with a view on the balance of simplicity and fairness in the proposed VAT rule change. This is particularly in light of its aim of better levelling the playing field for VAT compliant sellers.

Duration

The consultation will run for 8 weeks from 23 June 2026 until 18 August 2026.

Lead official

This is a joint consultation between HM Revenue and Customs (HMRC) and HM Treasury (HMT) and responses will be considered by a joint HMT and HMRC policy team.

The lead officials from each department are:

Edward Brett, Indirect Tax, HMRC
Tesni Steeds, Business and International Tax, HMT

How to respond or enquire about this consultation

Please use the online form to respond to this consultation. Email enquiries or responses should be sent to consultationonlinemarketplaceliability@hmrc.gov.uk. Written responses can be posted to:

Consultation Online Marketplace Liability
HMRC
14 Westfield Avenue
Stratford
London
E20 1HZ

Additional ways to be involved

The government will engage with businesses in different ways to ensure views and input from a broad range of interested stakeholders. This may include round table discussions and other events through which stakeholders can contribute to future policy development. If you would like to be involved in these events, please email consultationonlinemarketplaceliability@hmrc.gov.uk.

After the consultation

Written returns received in response to these questions will be shared between HMT and HMRC policy officials working on the consultation for the purpose of developing government policy and for advising HMT ministers.

Responses will be considered before any changes are confirmed and a formal response document will be published. If the government decides to implement changes, HMRC will subsequently publish a technical consultation on draft legislation.

Previous engagement

Since the government announced that it was considering changes to these rules at ‘Tax Update Spring 2025: Simplification, Administration and Reform’, officials have held meetings with and exchanged correspondence with a number of businesses and interested groups. This has helped shape initial policy design on which the government is now consulting.

Question 2

1. Foreword

Accepted Answer

As the Minister responsible for the UK tax system, I am focused day-in, day-out on making sure the tax system promotes a level playing field for fair competition amongst honest, hard-working UK business. It’s not right that businesses that dodge their tax obligations are able to undercut those paying their fair share, and so I am continually looking to make changes which will crack down on non-compliance.

In 2021, the previous government required online marketplaces in the UK to remit VAT on behalf of their overseas sellers. This reflected both the rapid growth and increasing structural importance of online commerce, and widespread avoidance of VAT by overseas sellers whose lack of UK establishment limited HMRC’s ability to enforce tax obligations.

While the reforms have been successful at collecting more VAT on sales by overseas businesses trading on online marketplaces, non-compliance persists on these platforms among sellers based domestically and overseas. Online sales now represent 28% of all retail sales, but currently, sales made through OMPs are only partially covered by the rules which ensure compliance. Meanwhile, tax fraudsters continue to find new and ingenious ways to avoid their obligations, depriving schools and hospitals of the funds they rely on.

This consultation therefore seeks views on how the current rules can be more effectively enforced. But it also proposes that online marketplaces’ responsibility for collecting and remitting VAT is extended to domestic sellers.

This will reduce non-compliance with the UK’s third largest tax. It will also help to support the most traditional marketplace — the high street — whose firms are frequently outcompeted by online sellers dodging their tax obligations.

To support the latter objective, the government is committing that any revenue raised from these reforms will be ploughed into improvements for the business rates system for pubs, restaurants, hotels and other businesses on the high street.

I hope that those who read and respond to this consultation will approve of my intention to take pounds from the pocket of those dodging their tax obligations, either those based here in the UK or overseas, and giving it back to hardworking businesses on our high streets.

Dan Tomlinson MP
Exchequer Secretary to the Treasury

Question 3

2. Executive summary

Accepted Answer

In 2021, the previous government introduced reforms to strengthen VAT compliance in the online marketplace (OMP) sector by making online marketplaces liable for VAT on certain sales facilitated by overseas businesses. These reforms have improved compliance and helped tackle VAT losses, but only among overseas businesses selling to UK consumers.

Despite these changes, non-compliant behaviour persists among both overseas and UK-based businesses. This non-compliance can distort competition and place compliant businesses, both online and on the high street, at a disadvantage.

The government is considering reform to achieve three key objectives: first, addressing as much of this non-compliance as possible; second, protecting businesses not required to register for VAT; and third, raising revenue from tackling non-compliance to fund improvements for the business rates system for high streets. In addition, we intend to design a policy which is workable and fair for the businesses who will be implementing and affected by the changes.

The government is therefore consulting on how to build on the success of earlier reforms and extend online marketplace liability so that marketplaces would be responsible for accounting for VAT on sales they facilitate on behalf of UK businesses. This includes domestic sales of goods such as retail goods and restaurant or takeaway food where they are sold via online marketplaces.

To minimise the impacts of the policy on businesses not required to register for VAT, the government is consulting on two options, and inviting alternative suggestions that meet the objectives set out above. These options include making online marketplaces liable only where per platform sales by UK businesses are above a specified value (referred to as a Minimum Platform Threshold), or making a VAT rate relief available to UK businesses below the VAT registration threshold.

Sales made by those not in business, including individuals selling second-hand goods, will not be in scope of the rules and will see no change. The government is also considering how the policy could apply to sales of second-hand goods by UK businesses, including the option of making such sales outside the scope of the rules. The consultation also seeks evidence on the administrative, commercial and operational impacts of these proposals on online marketplaces and businesses. It will run for 8 weeks from 23 June 2026 to 18 August 2026. Following the consultation, the government will publish a summary of consultation responses setting out next steps, in the usual way.

Question 4

3. Introduction

Accepted Answer

Value Added Tax (VAT) is a tax on most goods and services charged by VAT-registered businesses. Each business adds VAT at the applicable rate to its sales, collects it from customers, deducts the VAT it has paid on purchases, and pays the net amount to HMRC. VAT is the UK’s third largest tax, raising essential funds to pay for public services, and VAT evasion is a threat to these funds.

In 2021, the government made OMPs liable for charging and collecting VAT on business to consumer goods where:

they facilitate the sales of low value imports valued at £135 or less
the goods are in the UK at the point of sale by the overseas business

HMRC has closely monitored the application and effectiveness of the Online Marketplace liability (OMPL) rules since their introduction. The reforms have been broadly successful in tackling the most egregious non-compliance by overseas businesses. They are already estimated to have raised more than £8 billion, and continue to raise an estimated £1.8 billion per year, in combination with the removal of low value consignment relief.

Policy problem

However, HMRC has identified some persistent VAT non-compliance from both domestic and overseas businesses. HMRC estimate that there are tens of thousands of businesses trading through OMPs based in the UK that are not fulfilling their VAT obligations. This non-compliance could be costing the Exchequer hundreds of millions of pounds a year. Not paying the right tax gives these businesses an unfair advantage over compliant businesses, both online and on the high-street, who pay what they owe.

In tandem, OMPs continue to grow and represent an increasing share of consumer spending. According to the Office for National Statistics, internet sales as a percentage of total retail sales rose from 5% in 2008 to 28% in 2025. This partly reflects a structural shift in consumer preferences from shopping in person, for example on the high street, towards shopping online. It is therefore essential that VAT is correctly applied and paid on goods sold on these platforms, both to protect revenue and ensure fairness with UK businesses operating on the high street.

The government is interested in hearing from stakeholders about how the current VAT rules can be more effectively enforced on OMPs and is proposing the extension of VAT OMPL to UK businesses.

The government is conscious that changing the VAT rules for domestic businesses will have different impacts on businesses across the market. This consultation seeks views and evidence from stakeholders to better understand these impacts and explore potential policy mitigations. Responses to this consultation will inform future decision making, with the aim of supporting VAT compliance while enabling businesses to continue growing when selling through OMPs.

Non-compliance on OMPs

Some overseas and domestic business continue to behave in a way designed purely to evade the rules. VAT evasion is becoming increasingly complex across both domestic and overseas businesses, with some evidence of a sophisticated network of enablers supporting overseas businesses to fraudulently appear as UK-established, so that OMPs fail to apply the correct VAT liability.

This evasion follows 3 main patterns:

Overseas businesses, which unlike domestic businesses must account for VAT on all sales into the UK regardless of their turnover, masquerade as established in the UK so that OMPs fail to account for the correct VAT they are liable for.
UK businesses spread sales across a number of OMPs and other markets (disaggregation) to appear under the VAT threshold, therefore avoiding the requirement to register and pay VAT.
UK businesses register for VAT, reclaim their input tax and charge output VAT on their sales, but then either account for less VAT than they should, or dissolve the business before paying anything over to HMRC, creating a VAT debt.

This tax evasion enables overseas and domestic non-compliant businesses to undercut compliant UK businesses who follow the rules, including high street businesses, therefore damaging their profitability. If a business is intent on non-compliance, they can create an online storefront, find a supplier, avoid tax until caught and then vanish.

In the UK, the prevalence of VAT non-compliance in the delivered hot food sector is a particular and ongoing issue. It is currently estimated that hundreds of millions of pounds in VAT is lost annually through non-compliance in this sector. By not paying their fair share, these businesses are undermining competition and gaining an unfair advantage. As OMPs are giving them access to customers that they would not otherwise have been able to reach, it is only fair that they help ensure these businesses are correctly accounting for VAT.

Policy proposal and objectives for reform

In order to combat this non-compliance, the government is consulting on the proposal to make OMPs liable for accounting for VAT on more of the goods sold by UK businesses to consumers on their platforms.

To minimise the impacts of the policy on businesses not required to register for VAT, the government is consulting on two options, and inviting alternative suggestions that meet the objectives set out below. These options include making online marketplaces liable only where per platform sales by UK businesses are above a specified value (referred to as a Minimum Platform Threshold), or making a VAT rate relief available to UK businesses below the VAT registration threshold.

Our objectives for reform are:

tackling non-compliance and levelling the playing field: addressing VAT non-compliance on OMPs to reduce competitive distortions between compliant and non-compliant businesses, both online and on the high street
designing a policy which is workable: the government will prioritise designing reforms which are straightforward for businesses to implement, thereby minimising administrative burden
designing a policy which is fair: the government will seek to protect compliant businesses who are not required to register for VAT, while maintaining the effectiveness of the compliance framework
supporting UK businesses: ensure that revenue generated from improved compliance will enable the government to increase financial support for high street businesses. In his statement of 23 June 2026, the Exchequer Secretary to the Treasury committed that any revenue associated with these proposals will be redistributed to high street businesses via improvements to the business rates system

When the government talks about an OMP in this consultation, it means a business that under existing legislation (as set out in Annex B):

facilitates the sale of goods to customers, over the internet through a website or other means such as a mobile phone app, by allowing a third party to offer them for sale and to enter into contract for the sale of those goods

Such an OMP business must also be involved in all of these activities:

setting any terms or conditions on the sale of the goods to the customer
processing or enabling customer payments
ordering or delivery, or facilitating the delivery, of the goods

Question 5

4. About you

Accepted Answer

The government is seeking responses to this consultation from OMPs, those who use an OMP to buy or sell goods, including organisations that represent them, as well as anyone with a view on the balance of simplicity and fairness in the proposed VAT rule change.

Question 1: What is your name or business/organisation’s name?

Question 2: Are you responding to this consultation as:

a UK-based business selling on OMPs
an OMP
a representative body
an organisation
an individual
other (please provide details)

Question 3: If you are responding as a business, please tell us about:

the number of employees in your business
your annual turnover (this can be a range)

If you are a UK-based business, please answer the following questions about your business operations in the UK:

Question 4: Are you registered for VAT in the UK?

Question 5: Are you a sole trader, a partnership, or an incorporated company?

Question 6: What types of goods do you sell? What proportion of your sales are made up of each?

Question 7: Do you sell on OMPs? If so, how many?

Question 8: Do you also make sales via any other channels? For example, your own website or a physical shop. What influences this pattern?

Question 9: If you sell via other means than an OMP, what is the approximate percentage split of sales per channel?

If you are an OMP, please provide the following details about your business operations in the UK:

Question 10: Are you registered for VAT in the UK?

Question 11: What types of goods are available on your platform? What proportion of your sales are made up of each?

Question 12: What proportion of businesses on your platform are VAT registered businesses?

Question 13: What proportion of businesses on your platform turnover less than £90,000?

Question 14: What proportion of businesses on your platform are UK established?

Question 15: If you are a takeaway food delivery platform, do you also facilitate the sales of other goods? What types of goods, and what proportion?

The following questions are for all respondents:

Question 16: Please provide any further information about your organisation or business activities that you think might help us put your answers into context.

Question 6

5. The OMP liability extension proposal

Accepted Answer

Extending the liability rules

As outlined above, the current rules have been successful but non-compliance persists from both overseas and domestic businesses. The government’s proposal to strengthen these rules is to expand the existing policy principle, where OMPs are responsible for accounting for VAT on the sales they facilitate for overseas businesses, and extend it to some UK businesses’ sales of goods on their platforms. Similar domestic online marketplace liability rules are already in place in other countries, such as Switzerland (for goods) and New Zealand (for specific services). The current UK policy applies only to business to consumer sales, and it should be assumed that all references throughout this consultation regarding the expansion of the policy also apply to business to consumer sales only.

A minimum platform threshold (MPT) could be used to tailor the policy by only making platforms liable to account for VAT on sales by UK businesses with total sales above a specified value per platform. Any MPT would not replace or remove the obligation for a business to register for VAT when its total turnover meets the current VAT registration threshold. Additionally, it would only apply to sales by UK businesses; the current rules for overseas businesses selling through an OMP would remain unchanged.

In practice, the proposal to extend the liability rules would mean that when a UK business makes a sale of goods on an OMP, the OMP would be liable to account for the VAT rather than the underlying business. There would be no change to VAT rates or the liability of goods themselves, meaning for example that if a good is zero-rated for VAT then it would continue to be so following the application of the new rules.

All online marketplaces are subject to the 2021 reforms. However, OMPs that specialise in the sale of takeaway or delivered food, or only host UK businesses, will have needed to make fewer changes to implement them. The government recognises that these platforms may face a more significant adjustment to the extension to domestic businesses.

The government also acknowledges that some sectors and business models will have to make larger adjustments than others and is consulting so that it has as much information as possible, especially around administrative burdens and costs, when making the final decision on the policy.

Question 17: What suggestions would you offer for how the government could improve the current rules?

Question 18: As the proposed policy change could have varying impacts on specific sectors, please state any sector specific impacts you anticipate following the proposed rule change.

Impact on VAT registered businesses

Under the new proposals the government expects that VAT registered businesses would no longer be responsible for accounting for the VAT on the business to consumer sales that they make through OMPs.

As currently envisaged under this policy, for the purposes of accounting, when a business makes a sale through a marketplace a deemed zero-rated supply will take place between the businesses and OMP. The OMP will charge VAT at the relevant rate and account for the VAT on their own VAT return.

There will be no other change to a business’s VAT obligations such as sales through their own websites and physical storefronts. Businesses will still be able to recover input tax, including on online sales, as they do now, in line with the current rules. The government is aware that there will be administrative impacts caused by this policy, which is covered in section 6.

Impact on non-VAT registered businesses

As outlined above, the government’s intention is to combat non-compliance while minimising the impact on non-VAT registered businesses.

The minimum platform threshold (MPT) could be used to carve out businesses not required to VAT-register from the scope of the policy. The lead proposal is an MPT set at £90,000, which would bring into scope of the expanded rules only UK businesses with total sales on individual platforms which exceed the value of the VAT registration threshold. There is, however, a significant amount of VAT non-compliance that will not be tackled by an MPT set at £90,000. For example, businesses seeking to pay less tax than hardworking high street sellers, who comply fully with VAT rules, could illegitimately disaggregate their sales across multiple accounts on the same platform in an attempt to avoid the rules.

The government is therefore also seeking views on a lower MPT, which would carve-out the majority of non-VAT registered businesses operating on OMPs from the expanded rules, while also making it more challenging for non-compliant businesses to avoid their VAT liability. This would raise more funds which the government intends to spend on improvements to the business rates system for high streets, to be announced at the Budget.

The government recognises that businesses of similar sizes may be impacted differently by the same MPT depending on their balance of online and offline sales and their balance of sales between different online marketplaces.

Question 19: What are your views on the MPT as a policy option? If the MPT is set at the VAT threshold, how else could non-compliant smaller businesses be addressed?

Question 20: What are your views on an MPT set lower than the existing VAT registration threshold, and would you be supportive of such a policy if the funds raised were used for improvements to the business rates system for high street businesses?

VAT rate relief for non-VAT registered businesses

There are other potential options to soften the impact on businesses trading under the VAT registration threshold that may see a financial impact. For example, a form of VAT rate relief, similar to. This could be particularly helpful for small businesses who do not wish to voluntarily register for VAT. This relief would only be available to UK based businesses below the VAT registration threshold, and could help to offset the application of VAT on their sales by the OMP.

However, this may not address the risk of overseas businesses masquerading as UK based to gain a competitive advantage and could open up more avenues of non-compliance.

Question 21: If you are a UK business under the VAT registration threshold, how would a scheme such as this effect the impact of the overall policy for you? Would it make you more or less likely to voluntarily register for VAT?

Question 22: For all respondents, what would the administrative impacts of implementing such a scheme be?

Question 23: What other options could you suggest for reducing the impact on the smallest UK businesses?

Excluding sales made by those not in business

Individuals not in business will not be in scope of the proposed extension to OMPL, in line with the normal VAT treatment of non-business transactions. This would include, for example, individuals selling second hand clothes, trading collectables, or selling other unwanted goods.

Excluding sales of second-hand goods

VAT-registered UK businesses selling second-hand goods may apply the Second-hand Margin Scheme, whereby VAT is charged only on the profit margin realised on the sale. OMPs currently collect VAT on the full price of second-hand goods sold by overseas businesses, because OMP rules do not allow OMPs access to the margin scheme.

If the government extended current OMPL rules to UK businesses with no adjustments, then businesses selling second-hand goods sold through an OMP, would by default see the full rate of VAT applied to these sales as the OMP would not be able to take advantage of the Second-hand Margin scheme.

However, the government is aware this would cause issues for UK businesses selling second-hand goods on OMPs, with challenging implications for competitive pricing and business margins. Therefore, the government is considering excluding second hand goods sold by a business from OMPL or not allowing businesses on OMPs to take advantage of the second-hand goods scheme.

Question 24: How would the different options for second-hand goods impact your business? How would you address these impacts?

Question 25: If second-hand goods are excluded from OMPL, what risks remain around misrepresentation of goods as second-hand?

Question 7

6. Administration and business impacts for OMPs and their users

Accepted Answer

Administration for OMPs

Online marketplaces benefit from the trade which they facilitate on their platforms, so it is right that they also take responsibility for ensuring that the trade they facilitate is tax compliant. While the government recognises that this means increased administration requirements for OMPs, making them liable for VAT on sales on their platforms is the best way to strengthen compliance and make sure the right amount of VAT is paid. The implications of the proposals in this consultation are likely to differ for online marketplaces according to whether they:

already administer the existing VAT liability in respect of goods selling overseas businesses
would be newly brought into the extended VAT liability because the businesses selling on their platform are situated entirely in the UK (as is true for takeaway food delivery platforms)
only facilitate non-business sales, noting that they would still need to ensure that their checks are robust enough to demonstrate to HMRC that the sales on their platform meet the criteria for non-business sales as per existing VAT law and described in chapter 4

Depending on the OMPs business model, this policy could require them to do additional checks on the users of their platforms. Some of these will already be in place, for example some platforms have some kind of check to define between business and non-business sales. As the compliance landscape is continuously changing, it is general practice for HMRC to expect OMPs to take all reasonable steps for their due diligence rather than prescribe specific checks or actions. Checks required of OMPs by this policy could include:

where a business operating on the OMP is established
the turnover of a business operating on an OMP
whether a sale is made in the furtherance of business
whether the goods being sold are second-hand or new

The government is interested in the opinion of OMPs on what the proposal means for them and businesses on their platforms.

If you are an OMP, please answer the following questions:

Question 26: What would the administration impacts of implementing the policy options outlined be to your business?

Question 27: How long would it take you to implement the changes that would be needed to administrate this policy?

Administration for UK businesses operating on OMPs

UK businesses operating on OMPs will experience different administrative requirements depending on their interaction with the VAT system. The government is also keen to understand the commercial response of affected businesses where the OMP would have VAT liability for the sales they make. It is important for the government to gain the fullest appreciation of what drives the choices that these businesses make, and how this proposal could affect them.

The government understands that for businesses currently accounting for VAT on their sales, no longer doing so may have a cashflow impact as the VAT they would normally hold before accounting it to HMRC will now be collected by the marketplaces. The government is keen to understand the extent of this impact for businesses.

The VAT Flat Rate Scheme (FRS) allows businesses trading under £150,000 to account for a reduced rate of VAT on sales but not claim any input VAT. The extension of OMPL could have implications for the relatively small number of businesses trading on OMPs using the FRS. The government is interested in the views of businesses who could be impacted.

For VAT registered businesses on OMPs:

Question 28: What might be the additional costs to your business as a result of this policy?

Question 29: How long would it take you to implement the changes outlined in this policy proposal?

Question 30: How do you think that this proposal would affect your goods pricing decisions, cashflow and influence how and where you sell?

Question 31: How would the zero-rating of supply to OMPs impact your VAT accounting practices? Would you be in a net repayment position?

Question 32: Do you operate the VAT FRS? If so, what impact would losing access to the scheme to continue selling through an OMP have on your business?

Businesses that are operating below the £90,000 VAT registration threshold

If the government decides to pursue a broad version of the policy, with the strongest outcomes for reducing VAT non-compliance, some businesses not required to VAT register which are operating on OMPs may have VAT applied on their sales. These businesses may choose to register for VAT in order to reclaim their input VAT to lessen the impacts of VAT on their sales margins. Input VAT is the VAT paid on business expenses and inventory. The UK has a simplified VAT registration process which helps to minimise the administrative burden of the process.

However, if a business’ priority is to minimise the amount of tax administration, they are not required to VAT register until their turnover exceeds the VAT registration threshold as the OMP could manage the administrative requirements otherwise

The following questions are for non-VAT registered businesses on OMPs:

Question 33: If the OMP were to account for VAT on your behalf, would your business preference be to register for VAT voluntarily or would you implement a different commercial approach?

Question 34: What might be the additional costs to your business as a result of this policy?

Question 35: How long would it take you to implement the changes outlined in this policy proposal?

Question 8

7. Summary of consultation questions

Accepted Answer

Question 1: What is your name or business/organisation’s name?

Question 2: Are you responding to this consultation as:

a UK-based business selling on OMPs
an OMP
a representative body
an organisation
an individual
other (please provide details)

Question 3: If you are responding as a business, please tell us about:

the number of employees in your business
your annual turnover (this can be a range)