Every VAT-registered business in the UK should now be signed up for Making Tax Digital for VAT. HMRC has handled the sign-up, so there is no form waiting for you. What it has not handled is the part that catches online sellers out: getting figures from Amazon, Shopify or eBay into a VAT return without anyone retyping them along the way.
For a business with one bank account and a few dozen invoices a quarter, MTD changes very little. For a seller on three marketplaces, with payouts arriving net of fees and refunds landing in a different period from the original sale, it changes a good deal. The second kind of business is the one eAccounts, a Xero Platinum Partner, works with.
This is general information, not advice for your business. Check the GOV.UK pages listed at the end before acting on it.
What the rules actually require
There are two obligations.
The first is to keep certain VAT records digitally. GOV.UK calls this your electronic account: at minimum, the VAT on what you supply and the VAT on what you receive. You still need records of everything you buy and sell, including zero-rated and exempt items, and copies of invoices issued and received.
The second is to send your VAT return through software that connects to HMRC’s systems. That can be a full accounting package, or a spreadsheet connected to HMRC through bridging software. HMRC’s software finder lists both kinds of MTD-compliant software.
The rule that does the real work sits between the two. If your records pass through more than one piece of software, the data has to move between them by a digital link. VAT Notice 700/22 is explicit that cutting or copying and pasting information from one program to another does not count.
Around that sit a few fixed points:
- You must register for VAT once taxable turnover for the last 12 months goes over £90,000, or if you expect to pass £90,000 in the next 30 days alone. You can register voluntarily below that.
- Returns are usually quarterly. The online deadline, which is also the payment deadline, is usually one calendar month and 7 days after the period ends.
- A return is still due when there is nothing to pay or reclaim.
- VAT records must be kept for at least 6 years, or 10 years if you use the VAT One Stop Shop scheme.
- Exemption from MTD is possible where HMRC accepts that digital tools are not practical for you, for example because of age, disability or location. It has to be requested; it is not automatic.
Why marketplace income is where the chain breaks
An Amazon settlement is not a sales figure. It is a net amount: product sales, less referral and fulfilment fees, sometimes less advertising, adjusted for refunds and reimbursements, and occasionally straddling two VAT periods. Shopify payouts arrive with their own fees already taken off, and discounts and gift cards blur the gross number. Add eBay or Etsy and each platform reports in its own layout, on its own timetable.
The familiar workaround is a spreadsheet. Download the settlement report, total the columns, type the result into the books. That is precisely the step MTD closes off, because the figure on your return no longer traces back to its source through a digital link.
Compliance is only half of it. A payout booked as a single deposit understates turnover, which matters when you are watching the £90,000 line, and it buries the fees, which for Amazon sellers now carry VAT of their own. Since 1 August 2024, Amazon has billed UK-established sellers through the UK branch of Amazon EU S.à r.l. instead of Amazon Services Europe in Luxembourg. Referral, storage and advertising fees on the UK marketplace, and FBA fees on orders shipped from GB warehouses to GB customers, now carry 20% UK VAT rather than being reverse-charged, and a VAT-registered seller reclaims it on the return. FBA fees on orders fulfilled from outside GB are still reverse-charged, so one settlement can mix both treatments (Link My Books sets out the split). Netting the payout loses that VAT entirely. Confirm how it applies to your own account with your accountant. Refunds posted to the wrong quarter move output VAT between returns.
For the wider tax picture on a particular platform, our guides to eBay seller tax in the UK and how Amazon FBA works go further.
Mistakes that survive an on-time filing
A return can go in before the deadline and still be wrong.
A folder of PDF invoices is useful evidence, but it is not a digital record. MTD is concerned with VAT figures held in software, in a form that can flow through to the return without being rekeyed.
The threshold is easy to check too rarely. Because the £90,000 test looks back over the last 12 months at any point, a strong run of sales can take you over part-way through the year.
Leaving zero-rated sales off the books. Goods exported from Great Britain to outside the UK are usually zero-rated, but zero-rated is not the same as exempt. You still record the sale and show VAT on the invoice, at 0%. Northern Ireland has its own rules for goods going to the EU.
A late reconciliation makes for a late return. When marketplace data is assembled by hand each quarter, the return waits on the spreadsheet. Late returns and late payments can lead to penalties, so check HMRC’s current penalty guidance rather than relying on older rules.
A setup that holds together
A compliant setup for a marketplace seller has three links, and each one needs to be digital.
| Link | Manual version | Digital version |
|---|---|---|
| Marketplace to books | Settlement report retyped into a spreadsheet | Settlement data imported and split into sales, fees and refunds |
| Bank to books | Statements downloaded and entered | Live bank feed into the accounting software |
| Books to HMRC | Totals copied onto a return | Return filed from the software that holds the records |
Cloud accounting software such as Xero covers the second and third links: bank feeds bring transactions in, and the VAT return is filed from the same ledger. If you prefer spreadsheets, bridging software can file from one, but every figure feeding it still has to arrive by a digital link.
The first link is the one sellers most often leave manual, and it is where a settlement tool earns its place. Link My Books pulls marketplace settlement data into Xero and breaks each payout into its sales, fees and refunds, so the VAT on each part lands where it should.
How eAccounts handles this for online sellers
eAccounts is a Xero Platinum Partner working with sellers on Amazon, eBay, Shopify, Etsy, TikTok Shop and other platforms. We set up Xero and Link My Books so settlements reconcile properly, then prepare and file your VAT returns from the same records.
Packages are fixed monthly, not hourly. Everything included. Nothing extra. From £29 + VAT per month, with a dedicated accountant, Xero software, Link My Books, VAT returns, year-end accounts and unlimited support.
If your VAT return still starts with a spreadsheet, get a quote and we will show you what a digital setup would look like for your channels.
Common questions
Is Making Tax Digital just for VAT?
No. Making Tax Digital for Income Tax applies to sole traders and landlords registered for Self Assessment. It started on 6 April 2026 for those with qualifying income over £50,000, and the threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
How do I set up Making Tax Digital for VAT?
HMRC has already signed up VAT-registered businesses, so there is nothing to register for. The work is choosing compatible software, connecting your bank and each sales channel to it by digital links, and filing your returns from that software.
Can I still use spreadsheets for MTD for VAT?
Yes, as long as bridging software connects the spreadsheet to HMRC. Every figure in it must also arrive by a digital link, because copying and pasting between programs does not count under VAT Notice 700/22.
Who is exempt from Making Tax Digital for VAT?
HMRC can grant an exemption if digital record-keeping is not practical for you, for example because of disability or location, or if your business is in an insolvency procedure or run by a religious society whose beliefs rule out electronic records. You have to apply, and being unfamiliar with software is unlikely to qualify on its own.
Can I reclaim VAT on Amazon seller fees?
If you are UK-established and VAT-registered, generally yes: the 20% UK VAT Amazon now charges on most UK fees goes on your VAT return as input tax. FBA fees on orders fulfilled from outside GB are reverse-charged instead, and Flat Rate Scheme users cannot normally reclaim it, so check your own setup with your accountant.
Lewis shares practical guidance for UK businesses on accounting, tax and digital compliance.
