This is a systems problem as much as an accounting one. Most VAT difficulties in ecommerce come from shops that display, calculate or record something in a way that does not match what the accounts need.
The rules below are the shape of the thing rather than tax advice — take specifics from your accountant, and make sure they and whoever builds your shop have spoken to each other.
What the shop must display
Selling to consumers: prices must include VAT. Showing an excluding-VAT price to a consumer and adding it at checkout is not acceptable.
Selling to businesses: displaying excluding-VAT prices is normal and expected, with VAT added at checkout.
Selling to both: the site should show the appropriate figure and label it unmistakably. Many trade sites offer a toggle, remembered per user. What causes complaints is ambiguity rather than the price itself.
Delivery charges carry VAT at the rate of the goods being delivered, which surprises people. If you sell zero-rated goods, the delivery follows.
What a valid VAT invoice contains
Business customers need these to reclaim VAT, and their accounts departments check. A valid invoice includes:
- A unique, sequential invoice number
- Your business name, address and VAT registration number
- The customer's name and address
- The invoice date and the tax point if different
- A description of the goods or services
- The amount excluding VAT, per rate
- The VAT rate and amount for each
- The total payable
Two things go wrong most often. The numbering is not genuinely sequential, because the shop and the accounting system are both generating numbers. And the customer's purchase order reference is missing, which for trade customers means the invoice is returned unpaid.
Order confirmations are not invoices. Many shops send only a confirmation and are then asked for a proper invoice by every business customer, which somebody produces by hand.
Rates and mixed baskets
Not everything is twenty per cent. Some food, children's clothing and books are zero-rated; some goods carry a reduced rate. A basket can contain several rates at once, and the shop must calculate and record each correctly.
Rounding matters here. Calculating VAT per line and calculating it on the basket total can produce different answers by a penny, and consistent treatment is what keeps your records reconcilable.
Selling outside the UK
This is where it gets genuinely complicated and where small sellers get caught out.
Goods to consumers abroad are generally zero-rated for UK VAT as exports, with import VAT and possibly duty arising in the destination country. Who pays that depends on your delivery terms.
If your terms leave the customer to pay on delivery, be extremely clear about it on the product page and at checkout. A customer receiving an unexpected charge from a courier will refuse the parcel and dispute the payment, and you will lose both the goods and the fee.
Selling into the EU may bring registration obligations depending on value and arrangement, and schemes exist to simplify collecting VAT at the point of sale. Whether they suit you is a question for your accountant.
Digital services to consumers abroad are taxed where the customer is, at their rate, which is a materially different obligation to selling goods.
Marketplace sales often shift the VAT obligation to the marketplace. Your records must reflect that correctly or your return will be wrong.
The most common ecommerce VAT problem is not a misunderstood rule. It is two systems recording the same order differently and nobody reconciling them.
Getting the systems side right
One system owns invoice numbering. Usually the accounting system. If the shop also numbers invoices, you will eventually have duplicates or gaps, and both are awkward to explain.
Orders should reach accounting automatically. Retyping is where errors enter, and it does not scale. See connecting accounting to operations.
Refunds must flow the same way. Partial refunds, returned goods and cancelled orders all have VAT consequences, and they are frequently handled manually even when sales are automated.
Payment fees need recording separately. The amount that lands in your bank is the order value minus processing fees. Treating the net figure as the sale is a common bookkeeping error that understates turnover.
Keep records digitally with digital links. Making Tax Digital requires VAT records kept digitally and returns submitted through compatible software, with the chain from record to return unbroken by manual retyping.
What to check on your own shop
- Do consumer-facing prices include VAT everywhere, including in search results and emails?
- Does a business customer receive an invoice containing every required element?
- Are invoice numbers sequential and generated in one place?
- Do refunds appear correctly in the accounting system?
- Is delivery charged at the right rate for the goods?
- If you sell abroad, does the checkout state clearly who pays import charges?
An hour spent on this list prevents a great deal of work at year end.
Our integration team connects shops to accounting systems for UK businesses so records match without retyping. Start a conversation.
