Introduction
Selling to the UK or EU on eBay? Great market. But if your store isn’t VAT-compliant, you could face account blocks, withheld payouts, and thousands in penalties.
Proven Tip:
Register for VAT before you hit the mandatory threshold and submit valid invoices with every sale.
Proven Tip: Register for VAT Before You Cross the Threshold
If you’re selling in the UK and your total sales exceed £85,000 in a 12-month rolling window or you’re storing goods locally you must register for VAT.
Even below the threshold, VAT registration may be voluntarily beneficial to claim input VAT on business expenses and show credibility.
On eBay, VAT compliance includes:
- Displaying VAT-inclusive pricing
- Issuing proper VAT invoices
- Uploading your VAT ID to your eBay account
- Filing periodic VAT returns to HMRC
IRC Tax Code Relevance (For U.S. Sellers)
If you’re a U.S.-based seller shipping internationally or holding inventory abroad:
- IRC §901 – Foreign tax credit may apply for unrecoverable VAT
- IRC §988–§989 – Foreign currency reporting for conversions
- IRC §6001 – Requires detailed recordkeeping, including foreign tax payments
Failure to report VAT-related income correctly may trigger mismatches with Form 1099-K or Form 8938.
Relevant IRS Forms
| Form | Purpose |
|---|---|
| Form 1116 | Claim foreign tax credit for VAT paid |
| Form 8938 | Report foreign financial accounts/assets (if VAT refunds are deposited overseas) |
| Form 5471 | For U.S. shareholders in foreign corporations involved in VAT sales |
| Form 1099-K | Reflects gross sales from platforms like eBay may include VAT |
| Schedule C / Form 1065 / 1120-S | Report income net of VAT where applicable |
Example: £9,000 VAT Fine for a Non-Compliant eBay Store
A U.S.-based electronics seller began shipping products from a UK warehouse via eBay. Sales climbed fast over £96,000 in 8 months. They didn’t register for VAT or issue valid invoices. HMRC imposed:
- £6,800 in unpaid VAT
- £1,200 in interest
- £1,000 in late filing penalties
eBay temporarily suspended payouts until the VAT registration was validated. The seller now files quarterly returns, adjusted their pricing, and works with a CPA for foreign tax credit filings.
Step-by-Step Guide to VAT Compliance for eBay Sellers in 2025
Step 1: Determine Where You Have Nexus
Selling into or storing inventory in the UK/EU creates a tax presence.
Step 2: Register for VAT with HMRC or Local Tax Authority
Use a UK-based VAT agent or tools like Taxually or Avalara.
Step 3: Add VAT ID to Your eBay Account
Navigate to your account settings and provide your VAT number for each country you sell into.
Step 4: Issue VAT-Compliant Invoices
Ensure each sale includes:
- Your business name
- VAT number
- Customer info
- VAT rate and amount
- Total including VAT
Step 5: File VAT Returns On Time
Usually quarterly. Submit through your VAT agent or the online tax portal. Keep all invoices and VAT documentation for IRS reporting.
Conclusion
VAT rules aren’t just red tape they’re make-or-break for international eBay sellers in 2025. Don’t risk penalties, platform restrictions, or denied tax deductions. Register early, track everything, and work with a tax pro who knows both sides of the ocean.
Call to Action
Selling on eBay and unsure if you need VAT registration or U.S. foreign tax credit help?
Email Anshul Goyal, CPA EA FCA at anshul@kkca.io to schedule a VAT and cross-border compliance consultation.
Disclaimer
This article is for general educational purposes only and should not be considered legal or tax advice. Please consult with a qualified professional to evaluate your specific obligations.
FAQs
1. What is the VAT threshold in the UK for 2025?
£85,000 in 12 months. If you exceed it, VAT registration is mandatory.
2. Can I voluntarily register for VAT?
Yes, even below the threshold. It allows you to claim input VAT on business expenses.
3. Does eBay collect VAT automatically?
eBay may collect VAT on certain transactions, but you’re still responsible for registration, filing, and invoicing.
4. Can I deduct VAT in my U.S. taxes?
Generally, no, but you may qualify for a foreign tax credit via Form 1116 if the VAT is non-recoverable.
5. What happens if I don’t register for VAT?
Penalties, interest, possible account suspension, and withheld funds until compliance is restored.
About Our CPA
Anshul Goyal, CPA, EA FCA, is a U.S.-licensed Certified Public Accountant, IRS Enrolled Agent, and international tax strategist. He works with global eCommerce sellers on Amazon, eBay, and Shopify to help them remain VAT-compliant, minimize tax exposure, and streamline cross-border operations.
To schedule a session, contact anshul@kkca.io.