VAT and online selling fees
VAT and online selling fees
You run a small business that recently managed to start trading online by selling goods on TikTok Shop. How do you calculate your VAT liability, given that TikTok deducts various fees and commission before paying you?
Online selling
TikTok Shop was the UK’s fastest growing online retailer in 2024 so it’s no surprise that many small and medium-sized businesses are using it to expand their client base and bump up sales. Unlike traditional online marketplaces like eBay or Amazon, TikTok Shop is built into the social media experience itself.
Customers can buy directly from videos and live streams, making it easier for small businesses to convert viewers into buyers. Businesses that are VAT registered of course have to account for VAT on the additional sales made online, so how do you get it right?
Commission fees and delivery charges
TikTok Shop charges 9% for the privilege of using its platform (as do other online marketplaces), which is typically 9%. Then, depending on how your business operates, there could also be fulfilment fees and delivery costs. Your business receives the net amount from TikTok, after all of these costs.
Example. Online sales this month amount to £2,000 plus £200 shipping fees. TikTok deducts the shipping costs and 9% commission, leaving £1,820 to pay over to you.
Calculating the VAT
You could be forgiven for taking the view that you need to account for VAT on the actual income that you receive, which in our example would be £1,820 or even on the value of goods sold, £2,000.
In fact, HMRC guidance says that the consideration for a supply has to include everything received for making that supply, i.e. the cost to the customer including delivery charges.
VAT is also due on the postage and packaging because separate delivery charges are always standard-rated.
Power tip. If you’re selling goods which are zero-rated you can get around this by offering free delivery, allowing you to recover input VAT on delivery costs without charging your customers extra.
Therefore, VAT is due on the full sales value which would be the total value of the goods sold plus postage and packaging which is £2,200. The actual VAT due would therefore be £2,200/6 = £366.66 even though your business only received £1,820. The amount you would be left with would be £1,453.34.
You cannot therefore offset the charges deducted by any online sales platform from your total sales figure before accounting for VAT.
Reverse charge on platform fees
As most online selling platforms are based outside the UK, they do not charge VAT on their charges to UK businesses. However, VAT is due on the services supplied under the reverse charge procedures, where the UK seller accounts for the VAT due in Box 1 of the VAT return. A corresponding input tax deduction is made in Box 4 of the same VAT return effectively cancelling out the output tax charge resulting in a nil net tax position. The net figures are recorded in boxes 6 and 7 of the VAT return in the corresponding period.
If you sell goods through an online platform such as TikTok Shop, you cannot calculate VAT based on the net amount paid to you. VAT is due on the full selling price of the goods plus the delivery charges, even though an online platform may deduct commission fees at source.