UK E-Commerce VAT Review: Push for Universal Deemed Supplier Regime

The UK may extend the Deemed Supplier model to all online marketplace sellers, impacting VAT collection. Proposed changes eliminate the VAT threshold, risking business viability and causing price inflation. The new model complicates VAT compliance while favouring larger platforms, potentially reducing competition and consumer choice. Careful consideration of these consequences is essential before implementation.

The UK is considering extending the Deemed Supplier model — currently limited to non-UK sellers — to all sellers on online marketplaces, possibly in the 26 November 2025 Budget. Amazon proposes this to close loopholes and boost VAT revenue.

Current system (post-2021)

• Marketplaces are deemed supplier (and liable for VAT) only when the seller is non-UK established.
• UK-established sellers follow normal rules and benefit from the £90,000 VAT registration threshold.

Proposed solution:

Make marketplaces the Deemed Supplier for all B2C sales, regardless of seller location. Marketplaces would collect and pay VAT on every marketplace transaction.

Major consequences:

1. Effective abolition of the VAT threshold for marketplace sellers

Micro-businesses and hobby sellers below £90k can currently sell VAT-free. Under the new model, marketplaces must charge VAT and remit it, treating the sale price as VAT-inclusive (£10 item → £8.33 net to seller). Low-margin traders lose viability; many would exit or close.

2. Upward price pressure and inflation risk

Even VAT-registered sellers receive only VAT-exclusive amounts and may raise prices to protect margins. Marketplaces will increase fees to cover new compliance costs and liability risks → broad inflationary effect on consumer goods.

3. Channel distortion

Sellers below the threshold could still sell VAT-free on their own websites or social commerce, but not on marketplaces. This incentivises migration away from platforms, undermining HMRC’s reliance on large marketplaces as VAT collection points and jeopardising projected revenue gains.

4. Relocation, not elimination, of complexity

Sellers using multiple channels face split VAT treatment (marketplace sales VAT-inclusive, direct sales VAT-free or self-accounted). Marketplaces gain significant new burdens (rate determination, tax points, vouchers, promotions), with costs ultimately passed on.

5. Competition and market-structure risks

Only the largest global platforms can easily absorb the compliance build. Smaller and niche marketplaces may struggle, entrenching dominance of incumbents and reducing platform competition. Exit of micro-sellers (handmade, vintage, niche categories) would reduce consumer choice and e-commerce diversity.

In summary, while the proposal tackles real fraud, it would impose heavy costs on domestic micro-businesses, risk inflation, distort sales channels, merely shift (rather than reduce) complexity, and strengthen existing platform dominance — outcomes that require careful consideration before adoption.