The government has published 'Consultation response: Extending VAT online marketplaces liability to combat non-compliance'. Online marketplaces will become responsible for accounting for VAT on relevant sales by UK sellers from October 2027.
The consultation ran from 23 June to 18 August 2026 and sought opinions on Extending the Online MarketPlace (OMP) liability rules introduced in 2021.
- Despite the success of the introduction of the OMP liability rules, the government states that non-compliance with VAT persists among both overseas and UK-based businesses. Non-compliance distorts competition in the industry by enabling businesses that do not meet their VAT obligations to undercut businesses that are compliant both online and on the high street.
Rules extended
At Budget 2026, following the consultation, it was proposed that the VAT online marketplace rules be extended, with effect from October 2027.
- OMPs will be responsible for collecting the VAT on sales by:
- UK VAT-registered businesses.
- Other UK businesses meeting a minimum annual sales threshold of £90,000 per platform.
- The rules will not apply to business-to-business sales, personal sales or second-hand goods.
The government's approach to the reform has three key objectives:
- Reduce VAT non-compliance.
- Limit the impact on businesses legitimately below the VAT threshold.
- Raise revenue through improved compliance to fund business rate improvements for high streets.
The consultation received 67 responses, from a wide range of stakeholders including businesses that sell through OMPs, OMPs themselves, and representative bodies.
The respondents varied considerably in size and included small independent businesses as well as larger national businesses and organisations.
- Respondents were asked a variety of questions about their business/organisation, including its size and activities, VAT registration status and use of OMPs and other sales channels.
- OMPs were asked about their current business model and seller population operating on their platforms.
Views were sought on:
- The proposed extension of the OMP liability to UK businesses where the goods are in the UK at the point of sale.
Responses
Extending the liability rules
There was broad support for the government wanting to tackle non-compliant behaviour and encourage fairer competition.
The following was highlighted:
- There were differing opinions amongst respondents on how broadly the rules should be applied.
- Some respondents favoured a broad extension and considered that this could simplify VAT collection and reduce non-compliance whilst removing incentives from overseas businesses to present themselves as UK-based businesses.
- Others proposed a more targeted approach to OMP liability, including a mechanism which would allow non-VAT-registered businesses below the threshold to demonstrate their VAT status to the marketplace.
- Respondents felt that there was a need for the final policy to be proportionate, workable, supported by appropriate safeguards and implementation arrangements.
- It was also highlighted that the extension would impact different sectors differently:
- The food industry highlighted the treatment of Mixed VAT rates, changing product information, promotions and existing VAT arrangements.
- Smaller or specialist marketplaces highlighted the relative impact of systems and compliance changes.
- Multi-channel businesses highlighted the implications of operating different VAT arrangements across marketplaces.
The government has said the OMP liability extension will proceed. It noted that while HMRC's existing systems enable it to identify and tackle non-compliance, there are limits on what can be achieved through retrospective data and enforcement alone.
- OMPs are involved at the point of sale and are well placed to ensure that VAT is being accounted for as and when transactions take place.
- The need for greater use of marketplace data, stronger verification and more targeted compliance activity has also been noted.
- The government considers the systems already in place, along with the extension of OMP liability, will work together to tackle non-compliance.
- Further engagement with businesses will be undertaken as the legislation is developed.
Impact on non-VAT registered businesses
Many respondents supported the need for minimising the impact on those businesses that are not legally required to register for VAT while maintaining the need for tackling non-compliance.
- There were differing opinions on whether the Minimum Platform Threshold (MPT) should be aligned with the current VAT threshold, or should be lower.
- Business sellers seemed to favour aligning the MPT with the current VAT threshold, citing that it provided consistency across channels and protection from potential price and margin impacts for businesses below the threshold.
- Some respondents also suggested no MPT, accompanied by an alternative design feature or mechanism.
- It was thought that this would reduce non-compliant sales within the OMP liability by reducing opportunities for businesses to structure their sales in ways that keep them below the MPT.
- Respondents also identified practical considerations for:
- The operation of the MPT, including how sales would be measured.
- The treatment of returns and refunds.
- When an OMP liability would begin after the threshold was crossed.
- The requirement for clear guidance.
- Respondents were supportive of using revenue raised to fund improvements to the business rates systems.
The government has set the MPT at £90,000 to align with the current VAT threshold. The MPT will not change existing VAT registration requirements and will not apply to overseas sellers.
- The government believes setting the MPT at £90,000 provides an appropriate and proportionate balance between strengthening VAT compliance and limiting any unintended impacts for small businesses not required to Register for VAT.
- Although some respondents suggested a nil MPT, the £90,000 threshold is easier to implement than other policy suggestions.
VAT rate relief for non-VAT registered businesses
The consultation sought opinions on an alternative option to reduce the impact of the OMP liability extensions to businesses that operate below the VAT registration threshold. A form of rate relief would be available for eligible UK businesses that are under the VAT threshold, which would offset the impact of VAT being applied to their sales by an OMP.
- Respondents from small businesses highlighted that there was merit in introducing a VAT rate relief as a means of mitigating the impact of the OMP liability.
- Respondents favoured the £90,000 MPT rather than a separate mechanism.
- Concerns were raised regarding the complexity of a separate rate relief mechanism, with some respondents highlighting the additional processes and systems that might be required.
- There were mixed reviews on how VAT rate relief would affect voluntary VAT registration.
- Some indicated that VAT rate relief would make them less likely to register.
- Others considered that VAT registration could become more attractive where it allowed Input VAT recovery.
- Suggestions to reduce the impact on small businesses included:
- Retaining an MPT in line with the VAT threshold.
- Simplifying arrangements for affected businesses.
- Providing transitional or targeted protections.
The government has decided not to implement a VAT rate relief in light of the decision made regarding the MPT threshold.
Excluding sales of second-hand goods
Existing rules allow for eligible businesses to use the second-hand margin scheme under which VAT is accounted for on the profit margin as opposed to the selling price.
Extending the OMP liability rules to second-hand goods proves difficult due to the information needed to establish the taxable margin being held by the seller, and this is not always readily available to the OMP.
- The majority of respondents supported the exclusion of second-hand goods.
- It was noted that inclusion of these goods would likely drive up selling prices and reduce margins to the extent that it would threaten the viability of the large number of businesses that sell second-hand goods online.
- Suggestions were made that including second-hand goods would cause price hikes and dampen demand.
- A small minority highlighted that not including second-hand goods could open up opportunities for new goods to be misrepresented as second-hand to avoid the OMP liability.
The government decided to not include second-hand goods in the new policy. The aim is to preserve the benefits of the second-hand margin scheme currently in place.
Administration and business impacts for OMPs and their users
Overall, respondents expect there to be administrative and operational changes, identifying that systems and tax engines, accounting and reconciliation processes, reporting, seller verification and cash flow arrangements are all expected to be subject to these changes.
- OMPs that currently support the deemed-supplier rules could be able to adapt existing infrastructure.
- Others operating in general sectors, not in the scope of the existing deemed-supplier rules, identified the need for more extensive systems and operational changes.
- Respondents suggested that at least 12 months would be required after publication of detailed guidance to implement changes.
- Others thought as little as six months would be required, whilst others suggested a period longer than 12 months.
The government intends to act quickly on this policy due to the urgency to tackle non-compliance. The new rules will be implemented from October 2027.
Administration for UK businesses operating on OMPs
Respondents identified a range of impacts from implementing the policy. These included:
- Changes to systems and software, accounting and reconciliation processes, cash flow and financing arrangements.
- Some respondents identified cash flow and working capital concerns, with some expecting the proposal to increase reliance on VAT repayments or external financing where the OMP accounted for VAT on marketplace sales.
- The impact level on these is expected to vary, with many respondents saying costs could not yet be estimated until the final policy was known.
- Some respondents identified that VAT administration may be simplified under the proposals.
- Similarly, views on time to implement the changes would vary.
- Mixed responses were received on the impact of the proposal on the deemed zero-rated supply on their VAT accounting.
- Some expected businesses to move into net VAT repayment positions with additional reconciliation and reporting requirements associated with the changes.
The government is in agreement that changes will be needed to current systems and processes, and this may be costly. They will continue to work with businesses to further develop the policy and understand the concerns raised.
- To support businesses, HMRC will provide clear guidance on the new rules.
- To support cash flow issues, businesses within the scope of the new rules can apply to move onto monthly VAT returns.
- As there was limited engagement regarding the VAT Flat Rate Scheme, more time will be taken to consider how this functions in line with the new policy.
Businesses operating below the VAT threshold
For those operating below the VAT registration threshold, there was little support for voluntarily registering for VAT if they were in scope of the OMP liability extension.
- Some respondents identified commercial issues such as price changes or margins, reducing use of OMPs or moving towards direct sales.
- A small number of respondents highlighted that continuing to trade would no longer remain commercially viable.
- It was also noted that voluntary VAT registration may become more attractive where significant input VAT is recoverable.
- The effects of voluntary registration would vary from business to business depending on circumstances, costs, margins and scale.
- Potential costs such as marketplace fees, bookkeeping, and accounting changes could affect margins or prices.
- Varied responses were received on the length of time needed to implement the changes.
The government has said that it recognised the potential costs to businesses operating below the VAT threshold and has considered this in deciding to set the MPT at £90,000.
Conclusion
There was a broad range of responses given to the consultation, with the government using these opinions to set out the new policy.
- The government will release detailed guidance ahead of the implementation.
Useful guides on this topic
VAT: Autumn Budget 2026
VAT changes announced in the 2026 Autumn Budget include an extension to the online marketplace VAT rules and the zero rate of VAT on domestic electricity. A roadmap outlining the new e-invoicing requirements to be implemented in April 2029 has also been issued.
Digital Platform Reporting
What is digital platform reporting? What is a digital platform? What are the digital platform reporting obligations? Who is excluded from digital platform reporting?
Flat Rate Scheme
What is the VAT Flat Rate Scheme (FRS)? Who can apply? How do you apply? What are the rules? What are the rules for capital expenditure and pre-registration VAT?
External link
Consultation response: Extending VAT online marketplaces liabiltiy to combat non-compliance