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Compliant Sellers Pay For The Marketplace VAT Change In Cash Flow

ended 19. August 2026

HMRC's consultation on extending online marketplace VAT liability closes at 11:59pm tonight. It would make marketplaces account for the VAT on sales by UK based businesses whose goods are in the UK at the point of sale, extending rules that until now have applied mainly to overseas sellers. HMRC says tens of thousands of UK marketplace businesses are not meeting their VAT obligations.

Less attention has gone on what it does to the seller who was already paying. The government accepts the point itself. Its consultation says businesses no longer accounting for VAT on their sales may face a cashflow impact, because the VAT they would normally hold before paying it over will be collected by the marketplace instead. Under the standard scheme that money can sit with a seller for up to four months. The same document asks sellers whether they would end up in a net repayment position, and asks flat rate users what losing access to that scheme would cost them.

Nothing here is decided. Two further stages come before any law.

Questions

  1. Is it fair that a change aimed at sellers who are not paying their VAT takes working capital from the sellers who are?
  2. The government asks whether sellers would end up claiming VAT back rather than paying it, and what flat rate users would lose. In practice, how big is either problem?
  3. What should a marketplace seller be doing now to prepare for this? Do you have a client whose cash flow quietly depends on holding VAT before it is paid over? If so, please give as much colour and detail as possible.

2 responses from the Newspage community

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Editor
Harvey Dhillon
Founder & CEO at Zmartly
Going after unpaid VAT on marketplaces is overdue, and over time the compliant seller should be the winner here, because the competitor undercutting them stops being able to. The cost is in getting there. A seller who has been charging and paying VAT properly holds that money for up to four months before it goes to HMRC, and plenty of the sellers we act for have quietly been running on it as working capital without ever calling it that. Take the collecting off them and that working capital goes once and does not come back. The government isn't hiding it. Its own consultation accepts there may be a cashflow impact, asks sellers whether they would end up claiming money back rather than paying it, and asks flat rate users what losing the scheme would cost them. Those are the right questions. Anyone with most of their sales on a marketplace should model their cash without the VAT float, before the first quarter tests it.
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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
The principle is fair: businesses avoiding VAT should not be allowed to undercut those playing by the rules. But fixing non-compliance by weakening the cash position of compliant sellers is a pretty blunt instrument.

For some businesses, VAT is not just a tax entry; it forms part of their working-capital cycle. If the marketplace collects it immediately, that timing advantage disappears overnight. For a business operating on tight margins or buying stock ahead of sales, that could be meaningful. Flat Rate Scheme users could also face a genuine change in economics, not simply extra admin.

Sellers should model this now: strip VAT receipts out of monthly cash flow, stress-test stock purchases and payroll, and identify whether they would move into a repayment position. The danger is discovering after implementation that what looked like “cash in the bank” was actually funding day-to-day operations.