Selling products online and shipping them across borders can feel like a wild adventure, but when it comes to taxes, the landscape has changed dramatically. If you’re running an e‑commerce store or selling to UK customers from abroad, you need to pay close attention: new UK rules mean indirect taxes for e‑commerce are no longer optional extras; they can make or break your business.
At Finsoul Network, we understand the challenges of navigating VAT, compliance obligations, and sales‑tax nexus. Whether you’re a small overseas seller exporting to the UK or a UK‑based seller shipping internationally, understanding VAT rules is essential.
Get it wrong, and you could face fines, penalties, or unexpected costs. Get it right, and you keep your margins, stay legal, and build trust with customers. In this guide, we’ll walk you through everything you must know about VAT and indirect tax compliance when selling online to UK customers. We’ll explain:
- What UK VAT / supply‑VAT rules currently require from e‑commerce and cross‑border sellers?
- How the £135 consignment rule and other thresholds affect your obligations.
- When you need to register for UK VAT, and what “sales tax nexus” means under UK law.
- Common cross‑border tax risks every online seller should watch out for.
- Best practices (including tax automation for online sales) to stay compliant without over-complicating operations.
Whether you’re new to selling internationally or looking to scale up, this guide from Finsoul Network will help you navigate the indirect‑tax maze confidently and legally.
With clarity, compliance, and the right knowledge, you can successfully sell to UK customers without unexpected tax headaches.
Why Indirect Tax Matters for E‑commerce & Cross‑Border Sellers in the UK
If you’re selling products online, especially across borders, thinking about tax might feel like a drag. But in 2025, for many e‑commerce and cross‑border sellers targeting UK customers, indirect tax compliance isn’t optional; it’s a must. Here’s why:
The Rules Have Changed: VAT Hits Differently Now
Since 1 January 2021, under new rules from HMRC / GOV.UK, the way VAT works for overseas sellers and online marketplaces has shifted significantly. Instead of VAT being collected at the border when goods are imported into the UK, many transactions now attract UK‑supply VAT at the point of sale, especially for consignments valued at £135 or less.
What this means: whether your goods are coming from abroad or stored in a UK warehouse, VAT needs to be handled correctly before you ship to the customer or risk non‑compliance, fines, or complications.
Who Needs to Care Overseas & Marketplace Sellers
If you’re an overseas seller shipping directly to UK consumers, or you sell via an online marketplace, you’re likely affected. Under current guidelines:
- For goods outside the UK at the time of sale and consignment ≤ £135, you (or the marketplace, depending on setup) must register for UK VAT and charge UK supply VAT.
- If you use a marketplace platform, the marketplace might be deemed the “supplier” for VAT purposes and thus liable to account for VAT on your behalf. So even if you don’t live in the UK, selling to UK customers means UK VAT rules could apply.
Compliance Isn’t Optional. Mistakes Can Cost You
Ignoring VAT obligations, mis‑valuing consignments, or assuming “import VAT at delivery” applies are risky bets. Non‑compliance can lead to penalties from HMRC, forced registration, or liability for outstanding VAT.
Furthermore, if you sell through marketplaces and the platform fails to verify establishment/location or VAT status properly, you or the marketplace could be held liable under “joint and several liability” rules.
For Business Sustainability & Trust
Getting your indirect tax compliance right, VAT registration, correct VAT charging, clean invoices, and proper record‑keeping do more than just satisfy HMRC. It helps you:
- Price products transparently for UK customers (so no surprises at checkout)
- Build trust: customers appreciate correct VAT treatment over shady, hidden fees
- Avoid post‑sale issues: returns, refunds, customs hassles, and fewer headaches if VAT was handled properly
- Grow sustainably: knowing you meet compliance makes scaling to the UK audience more reliable
Key UK VAT Rules for Overseas & Cross‑Border E‑commerce Sellers
If you sell goods online and ship to UK customers either directly or through a marketplace, here are the key VAT and indirect tax rules you need to know. Getting these right is essential for compliance and avoiding headaches.
The 2021 VAT Rule Changes: What’s New for Overseas Sellers
From 1 January 2021, UK VAT law changed for overseas sellers supplying goods to UK customers. Under the updated rules:
- If goods are located outside the UK at the point of sale and they are sent to UK customers, those sales are treated as UK supply, not import supply. The VAT is calculated on the sale price, not on import valuation.
- As a result, overseas sellers (or sometimes the online marketplace) now must register for UK VAT if they sell goods to UK consumers, regardless of how small the sale is. There’s no VAT‑registration threshold for non-UK businesses under this rule.
In short, even a small e‑commerce sale could trigger VAT obligations if you’re shipping to UK customers. That’s why e‑commerce tax compliance is now more important than ever.
The £135 Consignment Rule: What It Means
One of the standout features of the post‑2021 rules is the “consignment value” threshold:
- If goods are sold to UK customers and the consignment value (total value of goods, not including separate shipping/insurance) is £135 or less, then the sale must be treated as a UK VAT‑liable supply.
- The online marketplace (if you sell via one) is usually the one responsible for charging and remitting the VAT as long as the marketplace handles payments and sale facilitation.
- If the consignment value exceeds £135 (or if the goods are already in the UK at the point of sale), then standard import VAT and customs/import duty rules apply instead of the point-of-sale VAT mechanism.
This rule sharpens the concept of “sales tax nexus” for sellers outside the UK: the location of goods, consignment value, and how goods are sold influence VAT liability.
Marketplace vs Direct Sale: Who Bears VAT Liability
How you sell matters. The VAT liability shifts depending on your sales channel:
- Selling through an online marketplace: If the marketplace facilitates payment and sale, and goods are outside the UK at sale with consignments ≤ £135, the marketplace typically becomes liable to account for VAT.
- Selling directly (without a marketplace): If you’re an overseas seller shipping directly to a UK consumer and goods are supplied from outside the UK, then you (the seller) are liable to register for UK VAT and account for VAT on each sale.
- Goods already in the UK when sold: If stock is held in the UK (warehouse or fulfilment centre) and then sold to a UK consumer, normal VAT/import rules apply, meaning VAT (and possibly customs/import duty) must be accounted for as per usual import VAT regulations.
This distinction is a key misunderstanding: who bears VAT liability is one of the biggest cross‑border tax risks. For more information, see the Excise & Customs Duties UK Guide.
Registration & Record‑Keeping Obligations
If VAT liability applies:
- Overseas sellers must register for UK VAT even if they think their UK sales volume is small. There is no threshold for non‑UK established sellers under the new rules.
- Sellers (or marketplaces) must issue proper VAT‑compliant invoices, record sales accurately, and keep VAT records for at least 6 years (as required by HMRC).
- Goods classification matters: Different goods attract different VAT rates (standard, reduced, or zero). Misclassifying items can cause compliance issues. Sellers must determine the correct VAT rate at the point of sale.
Common Pitfalls & Cross‑Border Tax Risks
Even with the right intentions, many e‑commerce and cross‑border sellers stumble, and these mistakes can cost money, damage reputations, or trigger compliance issues.
- Failing to register for UK VAT when required. Some overseas sellers assume small sales don’t need VAT registration, but under current rules, selling to UK customers (even low‑value consignments) often means you must register for VAT.
- Mis‑handling the “£135 consignment rule.” If you undervalue goods, split shipments unnaturally, or incorrectly calculate consignment value, you may avoid VAT now but risk future liability or penalties if found out.
- Selling via marketplaces without correct VAT compliance. Many sellers ignore that if you sell through an online marketplace, the platform may be treated as the supplier for VAT shifting liability and compliance burden.
- Incorrect product classification or VAT‑rate mistakes. Using the wrong VAT rate for certain goods (standard vs reduced vs zero‑rate) can lead to under‑charging or over‑charging VAT, both of which are risky.
- Poor record-keeping or missing documentation. Without accurate sales records, VAT invoices, and import/sales data, sellers may struggle to comply with audits or VAT‑return requirements, a red flag for tax authorities.
Because of these cross‑border tax risks, what may seem like “just a small shipment” can quickly turn into a complicated legal or financial headache unless compliance is correctly handled from the start. Learn more on avoiding penalties in the UK VAT penalties guide.
Checklist for E‑commerce & Cross‑Border Sellers (Pre‑Sale & Post‑Sale)
Use this as your go‑to checklist to make sure your e‑commerce or cross‑border business stays compliant, avoids common Value Added Tax (VAT) pitfalls, and handles indirect tax properly.
Pre‑Sale / Setup Checklist
- Determine where the goods are located at the point of sale
- Are the goods outside the UK (to be shipped in) or are they stored/warehoused inside the UK or Northern Ireland? This affects your VAT obligations significantly.
- Are the goods outside the UK (to be shipped in) or are they stored/warehoused inside the UK or Northern Ireland? This affects your VAT obligations significantly.
- If outside the UK, check if VAT registration is required
- If you sell goods to UK customers and are not established in the UK but are making taxable sales, you must register for UK VAT. There is no registration threshold for non‑UK businesses.
- If you sell goods to UK customers and are not established in the UK but are making taxable sales, you must register for UK VAT. There is no registration threshold for non‑UK businesses.
- Calculate the consignment value correctly
- For goods shipped to UK customers from abroad: check if the consignment value (excluding separate shipping/insurance if invoiced separately) is £135 or less, which triggers point-of-sale VAT obligations.
- For goods shipped to UK customers from abroad: check if the consignment value (excluding separate shipping/insurance if invoiced separately) is £135 or less, which triggers point-of-sale VAT obligations.
- If using an online marketplace, know who’s liable for VAT
- Often, the marketplace becomes the “supplier” for VAT purposes when facilitating sales under certain conditions (e.g. low-value consignments).
- Often, the marketplace becomes the “supplier” for VAT purposes when facilitating sales under certain conditions (e.g. low-value consignments).
- Set up compliant invoicing and record-keeping from the start
- Prepare to keep proper VAT‑compliant invoices (or digital records), and maintain all business and VAT records. HMRC requires you to record everything bought and sold and invoices issued and received and maintain a VAT account.
- Prepare to keep proper VAT‑compliant invoices (or digital records), and maintain all business and VAT records. HMRC requires you to record everything bought and sold and invoices issued and received and maintain a VAT account.
- Choose an accounting or bookkeeping system compatible with VAT records
- Use software/spreadsheet that allows digital record-keeping if required (under “Making Tax Digital for VAT”), tracking supplies (sales), purchases, VAT charged, VAT paid, and any adjustments or reverse‑charge operations.
Post‑Sale & Ongoing Compliance Checklist
- Charge the correct rate of VAT and issue valid VAT invoices
- Ensure you (or the marketplace) apply the right VAT rate (standard / reduced / zero‑rate) depending on the goods.
- Ensure you (or the marketplace) apply the right VAT rate (standard / reduced / zero‑rate) depending on the goods.
- Submit VAT returns and pay VAT due on time
- As a VAT‑registered seller, declare your total sales (including zero‑rated sales if applicable) and pay any output VAT to HMRC.
- As a VAT‑registered seller, declare your total sales (including zero‑rated sales if applicable) and pay any output VAT to HMRC.
- Keep VAT and business records for the required period (usually 6 years)
- This includes sales & purchase invoices, VAT account, records of imports/exports if relevant, any credit/debit notes, and all documentation related to goods sold or imported.
- This includes sales & purchase invoices, VAT account, records of imports/exports if relevant, any credit/debit notes, and all documentation related to goods sold or imported.
- Review and comply with any changes in VAT legislation or marketplace/VAT liability rules
- VAT laws and marketplace liability rules can evolve; stay updated to avoid compliance lapses.
- VAT laws and marketplace liability rules can evolve; stay updated to avoid compliance lapses.
- If using tax automation or accounting tools, ensure they follow HMRC’s digital record rules
- Use bookkeeping or ERP tools that produce compliant records (digital VAT account, invoices, audit trails), minimising manual errors in indirect tax compliance.
Conclusion
Selling online to UK customers comes with more than just shipping and customer service; it carries serious responsibilities when it comes to VAT and indirect‑tax compliance. As rules evolve (especially for overseas sellers and online marketplaces), it’s essential to understand who is liable, when VAT is due, and what you must do to stay compliant under HMRC / GOV.UK regulations.
At Finsoul Network, we believe clarity and compliance are the foundations of sustainable e‑commerce. Whether you’re an overseas seller shipping directly or using a marketplace to reach UK buyers, following correct VAT procedures, registration, invoicing, and record‑keeping helps you avoid penalties, build trust with customers, and keep your business stable.
Remember: compliance isn’t optional; it’s part of doing business responsibly. Use this guide to double‑check that your operations align with UK tax obligations, and if needed, seek professional advice for complex cases. With the right approach, you can grow your cross‑border sales with confidence and legal peace of mind.
Frequently Asked Questions (FAQs)
1. When do I need to register for UK VAT?
A: If you sell goods from outside the UK directly to UK customers, even low‑value consignments, you generally must register for UK VAT.
2. What is the “£135 consignment rule”?
A: If goods sold to UK customers are dispatched from abroad and the total consignment value (excluding separate shipping/insurance) is £135 or less, UK‑supply VAT applies at the point of sale rather than import VAT at customs.
3. I sell via an online marketplace. Do I still handle VAT?
A: Not always. If the marketplace qualifies under HMRC rules and handles the sale/payment process, the marketplace may be liable for charging and remitting VAT.
4. How long must I keep VAT/sales records?
A: You must retain VAT‑related records (invoices, sales, purchase books, VAT account) for at least 6 years.
5. What if I misclassify goods or apply the wrong VAT rate?
A: Miss-classification or wrong VAT rate can lead to compliance issues correct VAT rate depends on the goods type; accuracy matters to avoid penalties.