From 2027 UK sellers lose their VAT float

There is a pot of money sitting in your business right now that you have probably never thought of as a loan. It is the VAT you collected this morning and will not hand to HMRC until the end of the quarter. In the meantime, it buys stock.

From October 2027, it stops arriving.

The UK government confirmed on 28 October that online marketplaces will become responsible for collecting and accounting for VAT on qualifying consumer sales by UK-established businesses. The rate does not change. Nobody is taking money you were entitled to keep. What changes is who holds it between the sale and the return, and for a growing business that float has quietly been working capital.

Eleven months is enough time to plan for its absence. It is not enough time to notice in month ten.

Who is in scope

VAT-registered UK businesses are in scope, for goods that are in the UK at the point of sale.

A business that is not VAT-registered comes into scope once its annual sales exceed 90,000 pounds on an individual marketplace. The threshold applies separately to each marketplace, which is the detail most likely to be misread. A seller doing 80,000 pounds on one platform and 80,000 on another is below the threshold on both, despite 160,000 pounds of total sales. That is the rule as described, and it does not alter ordinary VAT registration obligations, which run on their own test.

HMRC’s note carries the 90,000 pounds in its overview, then says secondary legislation will set the level of the threshold and how it operates. The figure is an intention rather than a settled rule.

Personal sales, second-hand goods and business-to-business transactions sit outside the new collection rule, though HMRC says the treatment of second-hand goods will also be fixed in secondary legislation.

HMRC estimates the measure will affect about 100,000 businesses.

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The float, and why it is the whole story

Depending on where a sale falls in the quarter, that money sits in your account for anything from a few weeks to several months. After the change the marketplace takes it at the point of sale, and the payout simply arrives smaller, permanently, by the VAT element. The shortfall lands at exactly the point in the cycle where stock gets bought.

Put a number on it. At 20 percent, a seller turning over 600,000 pounds a year through marketplaces collects around 100,000 pounds of VAT, and holds some fraction of it on any given day. That fraction is the hole. The exact figure depends on your return cycle, so run your own.

Flat Rate Scheme users are the most exposed

One group has a worse problem than cash flow, and it is the group with the least guidance.

Under the Flat Rate Scheme a business charges VAT at the normal rate, pays HMRC a lower flat percentage of gross turnover, and keeps the difference. That difference compensates for not reclaiming input VAT on most purchases.

Take the VAT away at the marketplace and the whole mechanism stalls. The seller never receives it, so there is no gross amount in hand to apply a flat percentage to, and the margin the scheme produces has nowhere to come from.

How that is resolved has not been published. It is one of the open questions the British Retail Consortium has identified, and its list runs wider: invoicing, input VAT recovery, settlement, cash flow, deemed supplies, dispute resolution, safeguards for marketplaces relying on seller information, and whether integrated single-brand retail and franchise models are excluded. None of that is drafting detail. It decides whether a Flat Rate Scheme seller ends up better or worse off, and nobody can currently tell them which.

The BRC has also asked for at least twelve months between final legislation and implementation. That request is the one to watch, because the legislation is not final and the date is under a year away.

The second problem is reconciliation

Even for a seller on standard VAT accounting, the administrative change is larger than it sounds.

The accounts have to tie out gross sales, marketplace-collected VAT, fees, refunds and net payouts, and those arrive in formats designed for a world where the seller accounted for the VAT. No marketplace has published settlement formats for the new arrangement.

The figures will probably be right. Reconciling them is the problem, manually, in the first quarters after the change, for every seller at once, in an area where errors attract penalties. Treat the months before then as the time to fix bookkeeping that is already a scramble.

Refunds deserve attention. When a customer is refunded the VAT comes back too, through the marketplace rather than the seller’s own return, and how and when that credit reaches the seller has not been specified.

What is confirmed and what is not

This is announced government policy, not law. It requires the Finance Bill and secondary legislation to take effect, and the detail that matters most to sellers sits in the secondary legislation that has not been drafted.

On the start date itself, two reliable sources flatly disagree. HMRC’s own impact note says only that the government intends the measure to be implemented from October 2027, gives no day, and states that secondary legislation will set the implementation date. The British Retail Consortium, writing the same week, says the 1 October 2027 start date is confirmed. Neither is demonstrably wrong, and the BRC deals with the Treasury directly. Plan on October 2027, and treat the first of the month as the earliest plausible date rather than a fixed one.

The published costs are 40 million pounds one-off and a net 8 million a year, covering marketplaces and sellers together. No figures split the two, but HMRC does give a direction: greater per-business costs, both one-off and continuing, fall on marketplaces than on sellers.

The expected yield runs 165 million pounds in 2027 to 2028 and 320 million in 2028 to 2029, then 270, 250 and 265 million across the three years after that, attributed mainly to reducing non-compliance. Two things follow. The forecast assumes the measure collects VAT not currently being paid, so the Treasury’s case rests on an estimate of present under-collection. And the shape is the tell: a second-year peak settling lower looks like a one-off recovery rather than a permanent new stream.

What a seller does differently on Monday morning

Nothing is due this week, but the useful work is the kind that takes months rather than days.

• Work out what your average VAT float actually is. Take the VAT you collect in a quarter, look at when you pay it, and establish how much is sitting in the business on a normal day. That single number is the size of the hole.
• Put that number into next year’s cash-flow forecast from October 2027 onward, as a permanent reduction rather than a one-off.
• If you are on the Flat Rate Scheme, do not make any decision yet, but establish what the scheme is currently worth to you in pounds per year. When the mechanics are published you will need that figure to judge whether staying on it still makes sense.
• Check your bookkeeping can already reconcile gross sales, fees, refunds and payouts per marketplace. If it cannot do that today, it will not cope with an extra VAT line.
• Do not restructure anything around the 90,000 pound per-marketplace threshold. It is a threshold in announced policy that has not been through legislation.

Where the honest uncertainty sits

The measure is announced and not yet legislated, so every detail below the headline can change in drafting, including the threshold level, the treatment of second-hand goods and the implementation date, all of which HMRC says secondary legislation will set.

The points that decide the actual effect on a seller’s margin, listed above, are all unresolved.

No marketplace has published settlement formats or refund handling, so the administrative burden cannot be estimated yet.

And the cost figures cover marketplaces and sellers combined, so they do not tell an individual business what compliance will cost it.

The three-line version

• If you run the finances: calculate your average VAT float this month and write it into the cash-flow forecast as a permanent reduction from October 2027.
• If you have just taken on the accounts: the gap to name is the Flat Rate Scheme, where the mechanism the scheme relies on is interrupted and no replacement has been published.
• If you sign the budget: approve bookkeeping and reconciliation work now, while there is time. Approve no restructuring around a threshold that is not yet law.

Sources

• HMRC tax information and impact note: https://www.gov.uk/government/publications/vat-online-marketplace-liability-extension/extending-vat-online-marketplace-liability
• British Retail Consortium: https://brc.org.uk/news-and-events/news/finance/2026/ungated/budget-2026-vat-marketplace-reforms/
• EcomCrew: https://www.ecomcrew.com/the-u-k-will-make-online-marketplaces-collect-vat-from-domestic-sellers/