Budget 2026: 100k businesses hit by online selling VAT changes

Jacob Grattage, Reporter, Business & Accountancy Daily. Croner.

Both sellers and online platforms face estimated £48m costs as VAT collection rules tightened up in HMRC clampdown.

The major change to VAT rules, confirmed at the Budget, is designed to clamp down on VAT fraud and evasion by UK VAT registered businesses selling on online platforms but not paying the correct tax. In future this will not be avoidable for many as the online marketplaces will have to pay the VAT directly to HMRC.

From next autumn, online marketplaces such as Amazon, eBay and Facebook Marketplace, will be responsible for collecting VAT on sales by UK VAT registered businesses, and any other UK business with a minimum annual sales threshold per platform of £90,000.

‘The rules will not apply to non-business (ie, personal) sales, second-hand goods, or business to business transactions’, the Treasury stressed.

The legislation will extend an online platform’s liability to account for VAT to include ‘where that marketplace facilitates the sale of goods by a UK established business, and the goods are in the UK at the time of sale’.

This measure will apply where either the seller is registered for VAT, or where the seller’s sales on the online marketplace in question are above the mandated £90,000 threshold. 

The new rules will come into force from October 2027, although a specific start date has not been confirmed by the Treasury. Some aspects of the new rules will be implemented via secondary legislation next year, including setting the annual sales threshold per platform and the implementation date.

Justifying the reason for the clampdown, HMRC stated: ‘Some overseas businesses misrepresent where they are established to online marketplaces to evade the rules, and some UK based businesses fail to register for VAT or under-declare their VAT liabilities.’

The new rules will affect an estimated 100,000 businesses selling on online platforms, raising costs for compliance but also stopping widespread VAT non payment.

Given the scale of the change, HMRC said the new approach is expected to have a ‘significant impact on approximately 100,000 businesses’.

HMRC will publish detailed guidance ahead of implementation in 2027, including information on any accounting changes required to comply with the new rules.

There will be costs of £40m for the online platforms to implement the new VAT collection system, including for ‘one-off costs software updates to ensure compliance with new rules, ensuring sellers on their platform are prepared for the new rules and reviewing existing listings to decide the correct VAT treatment’.

HMRC figures anticipate ongoing annual costs of up to £8m for online platforms, which will have to set up new systems for ‘monitoring sellers and listings, resolving seller disputes, seller compliance checks and collecting and remitting VAT on sales in-scope’.

Affected businesses will incur new costs as they will have to provide ‘additional evidence to online marketplaces, verify VAT treatment of listings and monitor new cash flow solutions’, HMRC said.

The new VAT collection rules are expected to raise £320m in the first full year of operation, tax year 2028-29 and will HMRC cost around £1.1m a year to operate.

HMRC policy paper, Extending VAT online marketplace liability [issued at Budget, 28 Oct 2026]