VAT is usually the first piece of government admin that comes looking for you rather than the other way round. And the most expensive mistakes happen before you're even registered — because the rules about when you have to register are not what most people assume.
This is the plain-English version, checked against gov.uk in June 2026. It isn't tax advice — when real money is on the line, pay an accountant for an hour of their time. It'll be the best £150 you spend this year.
The threshold test everyone gets wrong
You must register for VAT when your taxable turnover passes £90,000 — but over any rolling 12 months, not your accounting year, not the tax year, not the calendar year. At the end of every month, add up the last twelve. If that number crosses £90,000, the clock is ticking: you have 30 days from the end of that month to register.
There's a second trigger people miss entirely: if you expect to take more than £90,000 in the next 30 days alone — a product going viral, a huge wholesale order — you have to register straight away, not after it happens.
Three things about what counts toward the threshold:
Zero-rated sales count. If you sell children's clothes or books, you might charge 0% VAT on them — but those sales still count toward the £90,000. Plenty of sellers have sailed past the threshold believing zero-rated meant invisible.
All your channels count together. Your own store, Amazon, eBay, Etsy, market stalls — if it's the same business, it's one total. HMRC doesn't care that the money arrives through four different dashboards.
It's your sales, not your payouts. Count what customers paid, not what landed in your bank after marketplace fees.
What actually changes when you register
Most goods become standard-rated: 20% VAT on everything you sell. The uncomfortable arithmetic is that if you keep your prices the same, roughly a sixth of your gross revenue now belongs to HMRC. If your margins were built without VAT headroom, registration is the moment that decision comes home — you either raise prices or absorb it.
Some ecommerce categories get relief: children's clothes and footwear, books (including e-books since 2020 — though audiobooks are still 20%, because tax law), and most plain food are zero-rated. Confectionery, crisps and anything you'd actually enjoy: 20%. Exports outside the UK are zero-rated too.
The other side of the ledger: once registered, you reclaim the VAT on what you buy for the business — stock, packaging, software, that new laptop. Keep proper VAT invoices; a card statement isn't enough. You can even reclaim VAT on goods bought up to four years before you registered, if you still have them.
Making Tax Digital, in one paragraph
Every VAT-registered business keeps records digitally and files through compatible software — there's no turnover minimum, and copy-pasting numbers between spreadsheets specifically breaks the rules (the links between your records have to be digital). Returns are usually quarterly, due one month and seven days after the period ends, and the money leaves by direct debit. Get bookkeeping software, connect it once, and this whole section becomes a non-event.
The flat-rate scheme — and its trap
If your VAT turnover is £150,000 or less, the Flat Rate Scheme lets you skip tracking input VAT: you just pay HMRC a fixed percentage of your gross takings. For most online retail that's 7.5% (4% if you sell food, children's clothing or newspapers), with a 1% discount in your first year. For straightforward shops it can genuinely simplify life.
The trap: if you spend less than 2% of your turnover on goods (or under £1,000 a year), HMRC classes you as a "limited cost trader" and your rate jumps to 16.5% of gross — which works out at nearly all the VAT you collected, with nothing to reclaim. Dropshippers and sellers of digital products fall into this constantly. Do the sums for your actual numbers before joining, not after.
Selling to the EU
Exports to EU customers are zero-rated for UK VAT — but somebody pays the EU's VAT, and you get to choose who. Without IOSS (the EU's Import One Stop Shop), your customer pays import VAT plus a courier "handling fee" on their doorstep, which is exactly the unboxing experience you'd design for someone you never want to order again. With IOSS, you charge their country's VAT at checkout for orders up to €150 and file one monthly return.
If you sell to the EU through a marketplace, breathe out: Amazon and eBay act as the deemed supplier and use their own IOSS numbers for those orders.
One change worth diarising: from 1 July 2026 the EU is scrapping the customs-duty exemption on parcels under €150 and applying a flat €3 duty per item type in the interim. Small, but it changes landed costs on EU orders — reprice accordingly.
The mistakes we keep seeing
Tracking turnover by calendar year instead of the rolling twelve months. Forgetting zero-rated sales count. Adding up payouts instead of sales. Pricing with no VAT headroom and meeting the 20% cliff unprepared. Spending the VAT you've collected because it was sitting in the same bank account — it was never yours; move it somewhere it can't be touched. And joining the flat-rate scheme because 7.5% sounded nice, without checking the limited-cost-trader rule.
Where your platform comes in
Your store should be doing the mechanical part for you. Orbit calculates UK and EU VAT at checkout automatically, keeps tax zones and rates configurable per region, and gives you clean order exports your accountant can actually work with. What no platform can do is watch your rolling twelve-month total and feel the £90,000 approaching — that part is yours. Check it at every month-end; it takes two minutes and it's the cheapest insurance in this whole article.