VAT Schemes UK
April 28, 2025
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In the UK, there are several VAT schemes available, each designed to suit different types and sizes of businesses. For online sellers, the choice of VAT scheme depends mainly on turnover, the nature of sales, and how you manage your accounting. Here’s an overview of the main VAT schemes available in the UK as of 2025:
Who it’s for: All VAT-registered businesses.
How it works: You report VAT on invoices issued and received, regardless of payment.
Best for: Businesses with good cash flow and standard accounting systems.
Common for online sellers: Yes, especially for larger operations or those using accounting software.
Who it’s for: Businesses with VAT taxable turnover of £150,000 or less (excluding VAT).
How it works: You pay a fixed percentage of your turnover to HMRC. You can’t reclaim VAT on most purchases.
Best for: Simpler accounting, fewer VAT returns.
Common for online sellers: Sometimes, especially sole traders or small sellers. However, not ideal if you have high VAT on purchases.
Who it’s for: Businesses with VAT taxable turnover of £1.35 million or less.
How it works: You account for VAT only when you receive payments or make payments.
Best for: Businesses with cash flow issues or delays in payment from customers.
Common for online sellers: Yes, if you’re paid later (e.g., via credit terms or marketplaces).
Who it’s for: Businesses with VAT taxable turnover of £1.35 million or less.
How it works: File one VAT return per year and make advance payments throughout the year.
Best for: Businesses that want to reduce admin.
Common for online sellers: Sometimes, especially for stable, predictable sales.
Who it’s for: Sellers of second-hand goods, antiques, or collectibles.
How it works: Pay VAT only on the profit margin, not the full selling price.
Best for: eBay and marketplace sellers of used goods.
Common for online sellers: Yes, if you sell second-hand items.
Who it’s for: UK sellers exporting to EU customers (post-Brexit rules).
How it works: Report and pay VAT on EU sales via a single return in the UK or via an EU intermediary.
Best for: E-commerce businesses with cross-border sales.
Common for online sellers: Yes, essential for EU sales after Brexit.
It depends on your situation:
Small sellers (under £150k): Flat Rate Scheme or Cash Accounting may be best.
Cross-border sellers: OSS is essential for EU B2C sales.
Selling second-hand goods: Margin Scheme.
Using platforms like Amazon, eBay: Standard VAT Scheme or OSS.
Want less admin: Annual Accounting Scheme.
Business type: Sole trader or limited company
Sales channel: eBay UK (and possibly EU via eBay Global Shipping or direct fulfilment)
Turnover: £200,000 (net of VAT)
Goods sold: New goods (not second-hand)
Customers: Mostly UK individuals, some EU customers
VAT registered: Yes (must register when turnover exceeds £90,000)
| VAT Scheme | Eligible? | Pros | Cons | Suitability |
|---|---|---|---|---|
| Standard VAT Scheme | ✅ Yes | – Full VAT recovery on purchases – Good for higher expenses | – More admin (quarterly returns) – Cash flow impact | ⭐⭐⭐⭐ |
| Flat Rate Scheme | ❌ No | – Simpler – Pay fixed % of turnover | – Not available if turnover exceeds £150k (excl. VAT) | 🚫 Not allowed |
| Cash Accounting Scheme | ✅ Yes | – VAT due only when paid by customers – Eases cash flow | – Can’t reclaim VAT until you pay suppliers | ⭐⭐⭐ |
| Annual Accounting Scheme | ✅ Yes | – 1 return per year – Predictable payments | – Less flexibility – Harder to track changes mid-year | ⭐⭐ |
| OSS Scheme (EU Sales) | ✅ If EU sales | – Simplifies EU VAT compliance – No multiple EU registrations | – Only for B2C EU sales – Requires extra setup | ⭐⭐⭐ |
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