The Budget 2026 confirms HMT plans to extend VAT liability to online marketplaces facilitating sales by UK-based businesses from 1 October 2027. The reforms aim to improve VAT compliance and create a fairer trading environment between online and high-street retailers.
We support these objectives but our response to the consultation on the proposals called for proportionate marketplace obligations, practical safeguards and clear rules that reflect the different business models operating across retail.
What is changing?
The government has announced a £90,000 annual sales threshold per marketplace platform, with VAT-registered UK businesses also within scope. Personal, non-business sales, second-hand goods and business-to-business transactions are excluded under the announced policy.
Marketplaces will be responsible for collecting and accounting for VAT on qualifying sales. However, the detailed rules governing compliance, VAT accounting and implementation remain to be confirmed.
The announcement reflects some BRC recommendations, but several important requests remain unresolved.
Partially addressed: The £90,000 threshold responds to the call for mitigation for smaller sellers, while exclusions for personal sales and second-hand goods address concerns about the scope of the regime. However, detailed rules are still needed to ensure these measures operate proportionately and can be applied in practice.
Not addressed in the announcement: The BRC’s request to limit marketplace obligations to information platforms can reasonably access and verify remains unresolved. The Budget also does not confirm an exclusion for qualifying integrated, single-brand retail and franchise models, where existing controls may already support VAT compliance.
Further clarity required: The Budget does not set out detailed arrangements for VAT-registered businesses, including deemed supplies, invoicing, input VAT recovery, settlement, cash flow and the Flat Rate Scheme. Nor does it confirm the requested dispute-resolution processes, safeguards for marketplaces relying reasonably on seller information, or clarity on VAT-rate relief and corrections.
Implementation remains a concern: The 1 October 2027 start date is confirmed, but we called for at least 12 months between final legislation and implementation.
What comes next?
We will continue engaging with HMRC and HMT as the legislation and guidance are developed to ensure the final legislation and HMRC guidance deliver a proportionate, practical and workable regime for marketplaces and retailers, prioritising:
- Clear, proportionate due-diligence obligations and safeguards for marketplaces.
- A decision on the proposed exclusion for qualifying integrated retail and franchise models.
- Practical VAT accounting, invoicing, correction and dispute-resolution rules.
- Confirmation of the implementation timetable, with sufficient time for systems development, testing and seller communications.
