If you operate a UK marketplace or platform, VAT is not just a filing task. It is a key part of your business model. Online sales now make up more than a quarter of UK retail, reaching 27.5% in September 2025. Platforms that manage VAT effectively gain an advantage in seller trust, payouts, and growth.
Platform Business Models & Where VAT Typically Applies
The VAT outcome varies based on your platform’s role and the type of supply:
- Goods via Marketplace: In certain situations, online marketplaces can be responsible for VAT on sales, such as certain overseas goods and consignments under £135, not just on their commission. HMRC outlines when the marketplace must handle VAT instead of the seller.
- Digital Services via Platform: When consumers purchase digital services through a platform, that platform is often treated as the supplier and must pay VAT unless specific exemption conditions are met.
- Services/Experiences (Non-Digital): Usually, sellers provide the underlying service; the platform collects agency fees from the seller. Whether you act as an agent or a principal is significant. The distinction between disclosed and undisclosed agency affects who is responsible for VAT.
Implication: Map each process (goods, digital services, “real-world” services) and determine whether you are an agent or a principal. This decision affects who invoices whom, how VAT is charged, and what details must appear on statements.
Commission, Listing Fees, And Subscription Plans: VAT Treatment Basics
Most UK platforms that charge fees to UK sellers will:
- Treat commissions (percentage take rate) as taxable supplies of services at the standard UK rate, charged to the seller.
- Treat listing fees, boosts, and promoted placements as taxable services (advertising/marketing).
- Treat subscription plans (for storefront, analytics, API access) as taxable services. If features vary across jurisdictions, apply standard place-of-supply rules and consider B2B reverse charge if the seller is outside the UK and VAT-registered in their own country.
- Refunds/chargebacks: Adjust output tax only when you have valid supporting evidence, such as credit notes or settlement records, for VAT adjustments.
Tip: Keep fee names and VAT treatment consistent across contracts, invoices, and dashboards. Inconsistencies can lead to reporting issues and disputes with sellers.
Split Payments Vs. Aggregated Settlement: Pros/Cons For VAT Evidence
Split payments direct a single customer payment into multiple parts, like seller net payout, platform commission, and sometimes tax or charity components, in (near) real time.
Why Split Payments Help VAT
- Clean Audit Trail: Each part has its own line-level details (tax base, VAT rate, counterparty), simplifying reconciliation compared to a single large merchant settlement.
- Deemed-Supplier Scenarios: When the platform must account for VAT on the buyer-facing amount (like some digital supplies), split flows keep this separate from seller funds.
- Chargeback Handling: It is easier to reverse the specific VAT-bearing part.
Pros
- Faster, detailed reconciliation and stronger VAT evidence.
- Reduces manual allocation and seller questions about “what’s in my payout”.
- Supports seller-level statements that link to tax returns.
Cons
- Complex payment service provider (PSP) requirements: Not all acquirers or PSPs support multi-party payouts, marketplace invoicing, and detailed remittance data.
- Data discipline: You need consistent tax-code mapping at checkout (item, seller, jurisdiction).
- Cost and effort: More webhooks, idempotency, and handling of failure modes.
Where to start: Use bilixe’s directory to find PSPs that support split payouts and marketplace invoicing, and shortlist providers with strong marketplace features.
Seller Onboarding (KYC/KYB) And Tax Info Capture
Beginning 1 January 2024, UK digital platform reporting rules aligned with OECD standards require relevant platforms to gather, verify, and report seller information and income to HMRC. The first reports will cover 1 January to 31 December 2025 and are due 31 January 2026 through HMRC’s platform reporting service.
What To Capture At Onboarding
- Identity & Business Status: Legal name, address, date of birth (for sole traders), company registration, and VAT number (if applicable).
- Tax Residencies: Reportable status and countries (per model rules).
- Banking & Payout: IBAN/account verification to minimize fraud and payout failures.
- Product/Service Categories: Drives VAT rate logic and marketplace liability checks, especially for goods and digital services.
- Document Evidence: Keep records of verification steps; this will be helpful for HMRC inquiries.
Why it matters: HMRC expects platforms to report specific seller data and income. The due diligence and record-keeping obligations are clear under the Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023.
Statements, Invoices, And Reconciliations Sellers Actually Need
Build seller finances around three key documents that connect:
1. Buyer Invoice/Receipt (Where Relevant)
- If you’re deemed the supplier, issue a VAT invoice to the buyer in your (platform) name including the rate and VAT amount.
- If the seller is the principal, make sure the buyer-facing invoice is in the seller’s name with the correct VAT amount, and the platform invoice covers your fee to the seller separately.
2. Platform Fee Invoice To Seller
- Monthly (or per-payout) invoices for commissions, listing, and subscription fees to each seller, showing net amounts, VAT, and gross totals.
- Include reverse-charge wording when applicable (for B2B cross-border supplies).
If you deduct fees from payouts, the invoice should match the exact amounts taken out.
3. Settlement Statement (Payout Reconciliation)
- For each payout: opening balance, gross sales, refunds, platform fees (sorted by tax code), shipping if applicable, chargebacks, and VAT summaries (rate categories, taxable base, VAT amount).
- Ensure line-item IDs match order IDs and payment IDs for full traceability.
- Provide downloadable CSV and APIs, allowing sellers to integrate data into accounting or Making Tax Digital software.
Pro move: Add a “VAT Control” section that summarizes taxable sales, zero-rated sales, exempt amounts, adjustments, and output VAT by rate for each seller period. This single table can reduce back-and-forth before filing.
Split Payments Or Aggregated Settlement: Which Fits Your Risk Profile?
- High-volume, multi-seller platforms: Prefer split payouts; they reduce reconciliation issues and enhance safety in deemed-supplier situations.
- Niche service platforms with simple fees: Aggregated settlements can work if you enforce strict metadata and consistent invoicing practices.
- Cross-border sellers: Prefer split flows to separate VAT obligations by jurisdiction and support different remittance partners.
Why Evidence Quality Matters (And What HMRC Is Watching)
HMRC estimates the UK tax gap at 5.3%, about £46.8 billion, for 2023–24. Small-business non-compliance contributes significantly. Platforms with poor VAT documentation and seller reporting risk audits, penalties, and reputational harm. Robust, machine-readable statements and timely reporting can close that gap. Remember, online sales are a large part of retail in the UK, accounting for over 27%. Your VAT setup is essential to your infrastructure.
Choosing The Best Merchant Services UK Platforms: VAT Considerations
When comparing payment service providers, payment processing companies, or a payment gateway that UK merchants depend on, evaluate:
- Marketplace-Native Features: Multi-party payouts, escrow, split settlement, and marketplace invoicing.
- Data Fidelity: The ability to pass item-level tax codes, seller IDs, and order IDs to the ledger and statements.
- Evidence & Reporting: Rate-level VAT summaries, downloadable audit trails, and webhook events for disputes and refunds.
- Cross-Border Support: Local payment methods, along with correct place-of-supply rules for digital versus non-digital supplies.
- Dispute Management: Clear processes for chargebacks and adjustments to VAT during reversals.
Create a shortlist of options that perform well in these VAT-critical areas. You can start with bilixe’s overview of the best payment gateways in the UK.
Compliance-Ready Reporting To Streamline VAT Returns
Simplify life for your finance team and sellers:
- Map Tax Codes Early: At checkout, tag each line with the VAT rate/reason (standard, reduced, zero, exempt, reverse charge).
- Single Source Of Truth: Create a VAT ledger that matches statements, no differences between what sellers see and what you file.
- MTD-Friendly Exports: Offer CSV/JSON exports compatible with Making Tax Digital for VAT software (period totals by rate, adjustments, EC sales lists where relevant).
- Automated Reconciliation: Link payment IDs to order IDs and invoice numbers; reconcile settlements daily.
- Controls & Alerts:
- Missing VAT numbers for B2B sellers
- Sudden changes in zero-rated or exempt proportions
- High reversal or chargeback rates affecting VAT adjustments
Seller Portal UX: Provide a “VAT Prep” dashboard that aggregates outputs by rate and flags missing data. Include sample journal entries and a test export for accountants to check imports before closing periods.
Why Sellers Care About Your VAT Design
- Fewer disputes: Clear fee invoices and VAT treatment lessen communication issues.
- Faster filings: Pre-totals reduce spreadsheet work.
- Lower risk: Clear evidence protects sellers during HMRC reviews.
As a platform, the more you streamline tax processes, the more you can attract high-quality sellers. This is the philosophy behind bilixe, which helps merchants find providers based on essential VAT capabilities.
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Conclusion
VAT is not just a compliance task for platforms. VAT shapes payouts, seller experience, and audit readiness. Treat commissions, listing fees, and subscriptions as important taxable services with clear invoicing. For complex multi-party flows and deemed-supplier situations, split payments offer better evidence compared to aggregated settlements. Build onboarding around KYC/KYB and tax reporting needs. Deliver seller-focused statements that align closely with their VAT returns. With online retail consistently above a quarter of UK sales and HMRC tightening its data collection methods, platforms that integrate VAT into their payment and reporting systems will earn trust and grow.
