Choosing the Best UK VAT Scheme for Online Sellers in 2025

For UK-based online sellers, understanding VAT online rules is vital. Whether you’re selling on eBay, Amazon, or your own eCommerce platform, selecting the right VAT scheme helps optimize compliance and cash flow. The UK offers several VAT accounting schemes suited to different business types and turnovers.

Overview of Main UK VAT Schemes

1. Standard VAT Accounting Scheme

• Who it’s for: All VAT-registered businesses.

• How it works: You report VAT output and input based on invoices issued and received—this applies regardless of actual payment.

• Common with: Those using best software for Making Tax Digital for VAT, like VAT-compatible software integrated with HMRC VAT online filing.

• VAT returns: Quarterly via H M Revenue & Customs online VAT portals.

✅ Pros:

• Full VAT recovery

• Suitable for claiming VAT on mileage, mileage claim VAT, or VAT on building works

❌ Cons:

• Higher admin burden

• Can impact cash flow if customers delay payments

2. Flat Rate VAT Scheme

• Eligibility: Businesses with VAT taxable turnover of under £150,000 (excl. VAT)

• How it works: Pay a flat percentage of turnover (see flat rate VAT scheme percentages) and cannot reclaim VAT on purchases (except for capital assets over £2,000).

• Tool: Use a flat VAT rate calculator or VAT calculator flat rate to plan.

✅ Pros:

• Simplified VAT returns

• Lower admin load

❌ Cons:

• Not viable if you incur high VAT expenses

• Not available if turnover exceeds threshold

Note: Based on your turnover (£200,000), this scheme is not eligible for you.

3. Cash Accounting VAT Scheme

• Eligibility: Turnover under £1.35 million

• How it works: Pay VAT only when you receive payment from customers. You can also claim VAT on fuel scale charges or VAT on drinks only after paying suppliers.

• Best for: Online sellers dealing with late payments or marketplaces with delayed remittance (e.g., eBay or Etsy)

✅ Pros:

• Improves cash flow

• Easier to manage VAT on rent income or construction VAT if paid later

❌ Cons:

• VAT reclaim delays on supplier invoices

4. Annual Accounting Scheme

• Eligibility: VAT taxable turnover up to £1.35 million

• How it works: Submit one VAT file yearly. Make advance payments during the year.

• Good for: Stable businesses with predictable income

✅ Pros:

• Fewer VAT filings

• Admin ease for small businesses using best digital VAT software

❌ Cons:

• May delay awareness of VAT overpayments/underpayments

• Less flexible mid-year changes

5. Margin Scheme for Second-Hand Goods

• Who it’s for: Sellers of used goods (e.g., via eBay)

• How it works: Pay VAT only on the profit margin, not the full sale price.

✅ Pros:

• Ideal if you’re wondering “do you pay VAT on used cars” or second-hand items

• Applies to businesses asking, “is there VAT on second-hand cars?”

❌ Cons:

• Not suitable for new product sellers

6. VAT OSS Scheme (One Stop Shop)

• Who it’s for: UK sellers with EU B2C customers

• Post-Brexit: You no longer charge UK VAT to EU customers but must report through OSS or register in individual countries.

✅ Pros:

• Centralized VAT filing for all EU sales

• Avoids multiple EU VAT registrations

❌ Cons:

• Requires separate OSS setup

• Only for consumer sales (not B2B)

Scenario: What Scheme Works Best?

Example Business Profile

• Type: Sole trader or limited company

• Platform: eBay UK + EU via Global Shipping

• Goods: New goods only (not second-hand or zero-rated VAT items)

• Turnover: £200,000

• Registered: Yes (threshold is currently £90,000 VAT threshold for registration)

VAT Scheme Comparison

Other Important VAT Topics for Online Sellers

• Delayed VAT payment? Consider a VAT payment plan HMRC or HMRC payment plan VAT.

• Selling new goods? Track VAT point, tax point VAT, and VAT tax point.

• Curious about food VAT? VAT on biscuits, VAT on chocolate, VAT on supermarket food, cake VAT, and crisps VAT all have different rules.

• Services like building work VAT, construction industry VAT, vat on electricity for businesses, and cis and VAT have specific rules.

• Unsure about what qualifies as zero-rated VAT items? Think heating oil VAT, biscuit VAT, or subsistence VAT.

• Filing support: Use forms for VAT, check VAT sign requirements, or file VAT online through MTD VAT services.

Final Tips

• Use the best software for Making Tax Digital for VAT to stay compliant and automate submissions.

• Always confirm if your items fall under zero rated VAT supplies or require standard VAT.

• If you miss deadlines, penalty late VAT return charges apply.

• For international or regional queries, explore Jersey VAT, VAT in Isle of Man, or UK VAT Jersey rules.

Need help setting up your VAT account or submitting a VAT invoice? Make sure your accounting tool is VAT-compatible software and registered with HM Revenue & Customs online VAT systems.

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