VAT for online shops in the UK: the basics

A UK online shop must register for VAT once its VAT-taxable sales go over £90,000 in any rolling 12 months, or if it expects to go over that in the next 30 days alone (as of October 2026). Below that you can choose to register voluntarily. Once registered, you add VAT to your prices, usually at 20%, and send a VAT return to HMRC, normally every three months.

When you need to register

The threshold is based on your taxable turnover, which is the total of everything you sell that isn’t exempt from VAT. For most online shops that’s simply your sales, including delivery charges you collect. It’s not your profit.

• Rolling 12 months. Check at the end of every month: add up the last 12 months of sales. If it’s over £90,000, you must register within 30 days of the end of that month.
• The next 30 days. If you expect sales in the next 30 days alone to go over £90,000 (say, a big wholesale order), you must register straight away.
• It’s not the tax year. Many people wait until April. The rolling check means you can cross the line in any month.

The threshold is £90,000 as of October 2026 and has been since April 2024. Thresholds can change in a Budget, so check gov.uk each year.

If your business isn’t based in the UK

Different rules apply if your business is based overseas but sells goods stored in the UK. In that case there’s generally no threshold, so you may need to register from your first sale. If that’s you, read HMRC’s guidance for overseas sellers on gov.uk.

Should you register voluntarily?

You can register below the threshold. It can make sense, but it isn’t right for everyone.

Reasons to register early

You can reclaim VAT on stock, equipment and services you buy. You sell mostly to other VAT-registered businesses who can reclaim your VAT. You’re close to the threshold anyway.

Reasons to wait

You sell mainly to the public, who can’t reclaim VAT, so you’d either raise prices or take a smaller margin. You’d also have more paperwork and returns to file.

VAT rates you’re likely to meet

As of October 2026, the UK has three main rates:

• Standard rate, 20%. Most goods: clothing for adults, electronics, homeware, beauty and so on.
• Reduced rate, 5%. A small number of things, such as children’s car seats and home energy.
• Zero rate, 0%. Things like most food, books and children’s clothes. You still record these sales, you just charge 0%.

Some products are exempt, which is different from zero-rated. And the line between categories can be surprising: some food is zero-rated while similar food is standard-rated. HMRC’s VAT notices on gov.uk list the details. If you’re unsure about a product, check before you set your prices.

Showing VAT in your prices

If you sell to the public, the price you show must be the price they pay, including VAT. You can’t show a price “plus VAT” to consumers. Business-to-business shops can show prices without VAT, as long as it’s clear.

• Set your shop to show prices including VAT for UK shoppers.
• Make sure the right VAT rate is set on each product, especially if you sell a mix of standard and zero-rated items.
• Delivery charges usually follow the VAT rate of the goods they’re delivering. If an order mixes rates, the delivery charge may need splitting. Check HMRC’s guidance.
• Discounts reduce the amount VAT is charged on, so VAT is worked out on the price after the discount.

What changes once you’re registered

1. 1Register online with HMRC on gov.uk. You’ll get a VAT number and an effective date of registration.
2. 2Charge VAT on your sales from that date. Decide whether to raise prices or absorb some of it.
3. 3Keep digital records of sales and purchases. Making Tax Digital rules mean VAT-registered businesses must keep records digitally and file returns through compatible software.
4. 4Issue VAT invoices when a VAT-registered business customer asks for one. Your shop’s order emails can usually include your VAT number.
5. 5File VAT returns, usually every quarter, and pay what you owe on time.
6. 6Reclaim VAT you’ve paid on business costs, such as stock and packaging, if you have proper invoices.

Schemes that can make it simpler

HMRC has a few schemes for smaller businesses. Each has eligibility rules, so check gov.uk:

Flat Rate Scheme

You pay a fixed percentage of your turnover to HMRC instead of working out VAT on every sale and purchase. Simple, but not always cheaper for shops that buy a lot of stock.

Cash Accounting Scheme

You pay VAT when your customers pay you, and reclaim it when you pay suppliers, rather than when invoices are issued.

Annual Accounting Scheme

You make advance payments through the year and file one return at the end.

Selling outside the UK

VAT gets more involved once you ship abroad. Goods you send out of the UK can often be zero-rated if you keep proof of export, but the shopper’s country may charge its own VAT and duties when the parcel arrives. Selling to Northern Ireland and the EU has its own rules too. Our guides on selling to Ireland and to the US cover the basics, and gov.uk has the official detail.

If you sell in several countries, it helps to use a shop platform that lets you set prices per country. On Merchella, each country has its own prices and currency, so you can show UK prices with VAT included and set separate prices for other markets.

Common VAT mistakes

• Only checking turnover once a year instead of every month.
• Counting profit instead of total sales against the threshold.
• Forgetting that delivery charges count towards turnover.
• Putting every product on 20% when some should be zero-rated, or the other way round.
• Not keeping invoices for purchases, so you can’t reclaim VAT on them.

In short

Track your rolling 12-month sales every month and register when you pass £90,000 (as of October 2026). Show VAT-inclusive prices to consumers, set the right rate on each product, keep digital records and file on time. For anything you’re unsure about, gov.uk and a good accountant are worth far more than a guess.