FSB Endorses Government’s Approach to VAT Compliance in Online Marketplaces
The Federation of Small Businesses (FSB) has expressed its support for the UK Government’s preferred method to address VAT non-compliance within the online marketplace sector. The approach aims to close existing tax loopholes while safeguarding small businesses from undue regulatory burdens.
HM Revenue & Customs (HMRC) recently launched a consultation proposing to extend online marketplace liability for VAT compliance. Crucially, the Government’s preferred option exempts businesses with annual sales below the VAT threshold of £90,000 from these new requirements, a move welcomed by the FSB as it protects smaller traders.
Balancing Tax Fairness with Small Business Protection
Craig Beaumont, Executive Director at the FSB, commented on the Government’s plan: “The Government’s preferred option for collecting VAT from sales on online platforms is the best option if taking this kind of approach. Businesses with sales of under £90,000 per year will be excluded. We hope that this will strike the right balance between addressing a tax loophole and protecting small businesses.”
Beaumont further emphasized the importance of shielding independent retailers and online entrepreneurs from excessive administrative demands: “Independent retailers and online entrepreneurs below the £90,000 VAT threshold are protected from significant red tape, and this must be maintained as ever more commerce happens online. We believe the Government’s preferred proposal will protect this group, and are pleased to see this approach being taken.”
Context and Implications for Digital Commerce
This consultation forms part of a broader Government initiative to ensure fair VAT collection across digital commerce platforms. Online marketplaces have increasingly come under scrutiny for their role in facilitating VAT non-compliance, especially involving overseas sellers who operate through these platforms without meeting UK tax obligations.
The FSB has consistently advocated for a compliance framework that does not impose disproportionate burdens on the smallest traders, many of whom rely on online marketplaces as their primary channel to reach customers. The organisation has pledged to remain actively engaged in the consultation process to ensure that the interests of small businesses are well represented throughout policy development.
As e-commerce continues to expand rapidly, with UK online retail sales reaching £141 billion in 2023 according to the Office for National Statistics, the importance of a balanced VAT compliance system becomes ever more critical—not only for government revenue but also for maintaining a vibrant, fair marketplace for small enterprises.
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