VAT for eBay sellers in the UK

What is the VAT threshold for eBay sellers?

There's no separate VAT threshold for eBay. The normal UK rules apply to your whole business. GOV.UK says you must register if your total VAT taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days.

The last 12 months is a rolling period, not the tax year. At the end of every month, add up the previous 12 months of sales.

Watch out If you register late, GOV.UK says you must pay VAT on sales made since the date you should have registered, and you may get a penalty.

Is the VAT threshold based on turnover or profit?

Turnover. GOV.UK defines VAT taxable turnover as the total value of everything you sell that isn't exempt from VAT or out of scope. Your costs don't come off it.

This matters for resellers and dropshippers because margins are often thin. For example, if you sell £8,000 a month, that's £96,000 over 12 months. You'd be over the threshold even if your profit was a small part of that.

Count all your taxable sales, not just eBay. Sales on other marketplaces or your own website count too.

Do you pay VAT on eBay fees?

Yes. eBay's fee page for business sellers says all fees shown are exclusive of VAT, so VAT is added to what you pay. eBay's fee page for private sellers says its fees include VAT at 20%.

• Not VAT-registered: the VAT on your eBay fees is a cost you can't get back. Include it in your profit sums.
• VAT-registered: GOV.UK says you can reclaim VAT on things you buy for use in your business, as long as you have valid VAT invoices. Keep your eBay invoices.
• The same applies to stock. If your supplier is VAT-registered and gives you a valid VAT invoice, you can reclaim that VAT once you're registered.

How to price your eBay listings once you're VAT-registered

When you sell to consumers, the price you show must include all taxes. So your eBay price is the VAT-inclusive price.

At the standard rate of 20%, the VAT inside a VAT-inclusive price is one sixth of it. If you keep your prices the same after registering, your margin drops by that amount.

Not everything is standard-rated. Some goods are zero-rated or reduced-rated, so check the rate for what you sell.

What changes once you're VAT-registered?

You can also choose to register before you reach the threshold. Whether that helps depends on your costs and your buyers. Most eBay buyers are consumers, who can't reclaim VAT, so adding VAT to your prices can make you less competitive.

• You charge VAT on your taxable sales, wherever you sell.
• You usually send a VAT Return every 3 months, even if you have no VAT to pay or reclaim.
• You keep VAT records and valid VAT invoices for what you buy.
• eBay's business seller policy asks for your VAT number if your online sales are subject to VAT, and eBay can show it in your listings.
• You can reclaim VAT on business costs, including eBay fees and stock, with valid VAT invoices.

Should you use the VAT Flat Rate Scheme?

On the Flat Rate Scheme you pay HMRC a fixed percentage of your VAT turnover and keep the difference between that and the VAT you charge. GOV.UK says you can join if your VAT turnover is £150,000 or less, excluding VAT.

The catch for sellers who buy stock: on the scheme you can't reclaim VAT on purchases, except some capital assets over £2,000. The rate depends on your business type. GOV.UK lists 7.5% for retailing not listed elsewhere, and 16.5% if you're a limited cost business, which means your goods cost less than 2% of turnover or less than £1,000 a year. There's a 1% discount in your first year of VAT registration.

If you buy a lot of stock with VAT on it, standard VAT accounting may work out better. It's worth running both sets of numbers.

When to get an accountant

VAT depends on what you sell, who you sell to and how you buy. This guide isn't tax advice. Check with an accountant when you're getting close to the threshold, before you register voluntarily, or before you choose a VAT scheme.