VAT for E-Commerce: What Online Sellers in St Albans, Luton & London Need to Know in 2025

Key VAT Updates for Online Sellers in 2025 

1. VAT Registration Threshold Increased to £90,000 

From April 1st, 2024, the UK VAT registration threshold increased to £90,000 of taxable turnover in any rolling 12-month period. 

• If your turnover exceeds £90,000, you must register for VAT. 

• If you expect your turnover to go above £90,000 in the next 30 days, you must register in advance. 

• If your turnover is below the threshold, registration is optional (voluntary VAT registration). 

This change affects many small and medium-sized sellers, especially those in high-demand sectors such as beauty, home goods, and fashion in London and surrounding areas. 

✅ 2. VAT Obligations for Marketplace and Direct Sellers 

If you sell via online marketplaces (Amazon, Etsy, etc.), VAT may be handled differently: 

• For goods sold directly by you (e.g. through Shopify or WooCommerce), you are responsible for charging, collecting, and reporting VAT. 

• For sales facilitated by marketplaces under certain conditions (e.g. imported goods under £135), the marketplace may be the deemed supplier and responsible for VAT. 

Regardless of collection, maintaining digital record-keeping VAT and filing accurate VAT returns for online sellers is your responsibility if registered. 

✅ 3. Cross-Border VAT Rules 

If you sell digital services or goods to EU customers, post-Brexit rules apply: 

• UK sellers may need to use the One-Stop Shop (OSS) or Import One-Stop Shop (IOSS) for EU VAT compliance. 

• For physical goods, customs and VAT declarations are required when shipping abroad. 

• You are still responsible for UK VAT on sales to UK customers. 

These rules apply even if you’re a small business based in Luton, St Albans, or London, so long as you ship internationally.

✅ 4. Digital Record-Keeping & Making Tax Digital (MTD) 

All VAT-registered businesses regardless of size must comply with Making Tax Digital (MTD) for VAT, which requires: 

• Keeping digital records of VAT transactions. 

• Using MTD-compatible software (e.g. Xero, QuickBooks, Sage). 

• File VAT returns online directly through software. 

This requirement has applied to all VAT-registered businesses since April 2022, and remains mandatory in 2025.  

How to Register for VAT in 2025 

If your turnover has crossed the threshold or is about to, follow these steps: 

1. Visit GOV.UK and register online for VAT. 
2. Provide business and bank details. 
3. Receive your VAT number and VAT registration certificate.
4. Begin charging VAT on taxable goods and services. 
5. Submit your first VAT return online typically quarterly. 

 ‘You cannot include VAT on your invoices until you get your VAT registration number, but you can increase your prices to account for the VAT you’ll need to pay to HMRC.’

Deadlines and VAT Return Obligations 

Most businesses submit VAT returns online quarterly, with payments due one month and seven days after the period ends. 

Each VAT return must include: 

• Total sales and purchases. 

• The amount of VAT owed and reclaimable. 

• The net VAT due to HMRC. 

Timely submission and payment are essential to avoid penalties. 

Penalties for Late or Incorrect VAT Compliance 

From 2023 onwards, HMRC introduced a points-based VAT penalty system: 

• A penalty point is given for each late submission. 

• After reaching the penalty threshold (e.g., four late submissions in 12 months), you’re fined £200. 

• Additional £200 fines apply for every further late return. 

Late VAT payments now incur: 

• 2% interest after 15 days 

• Additional 2% at 30 days 

• Daily interest beyond 30 days 

These rules remain in place in 2025. Therefore, accurate records and timely filings are essential.  

Best Practices to Stay VAT Compliant 

✅ Use Digital Accounting Software 

Tools like Xero, Sage, or QuickBooks are MTD-compatible and automate much of the VAT process. 

✅ Track Turnover Monthly 

Set up your software or spreadsheet to track rolling 12-month turnover so you know when you’re approaching the £90,000 threshold. 

✅ Maintain VAT-Compliant Invoices 

Ensure your sales invoices include the following: 

• Your VAT number 

• Date and invoice number 

• Net amount, VAT amount, and gross total 

• Breakdown of standard vs. zero-rated items (if applicable) 

✅ Retain Digital Records 

You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. For example if you sent your 2024 to 2025 tax return online by 31 January 2026, you must keep your records until at least the end of January 2031.

✅ Consult a Bookkeeper or Accountant 

Professional advice can save time and prevent mistakes. Look for local advisors familiar with e-commerce VAT London businesses or sellers in Luton and St Albans.  

Is Voluntary VAT Registration Worth It? 

Some businesses below the threshold choose to register voluntarily to: 

• Reclaim VAT on business purchases (e.g. inventory, software, shipping). 

• Appear more established to suppliers and customers. 

However, voluntary registration means you must: 

• Charge VAT on all UK taxable sales. 

• Submit returns and keep digital records. 

• Comply with MTD rules. 

Evaluate whether VAT registration improves your margins or adds unnecessary admin for your business model.  

Summary: Key Takeaways for 2025 

Conclusion 

Navigating VAT for e-commerce in 2025 is manageable with the right tools and expertise. By staying organised with digital record-keeping VAT, partnering with a bookkeeper specialising in ecommerce, and understanding VAT registration UK and VAT returns online sellers, online sellers London, St Albans, and Luton can avoid penalties and ensure long-term business growth.

Whether you’re starting an online store or scaling beyond the £90,000 threshold, expert guidance ensures compliance, efficiency, and profitability in 2025 and beyond

Looking for help with VAT for your e-commerce business? Partnering with a professional bookkeeper can ensure your business is set up for success in 2025 and beyond.