HMRC Cracking Down on Online Marketplace Sellers: Risks for Companies Trading on Amazon, eBay and Etsy

Online Marketplace Sellers Are Now a Priority for HMRC

If your company sells goods through Amazon, eBay, Etsy or any other online marketplace, you need to be aware that HMRC has significantly increased its focus on this sector. Market sellers are individuals or businesses that list and sell products or services on shared digital platforms rather than through their own independent online stores. The combination of new data-sharing rules, improved digital intelligence tools, and changes to how online platforms are required to report seller income has made it considerably harder for non-compliant sellers to stay under the radar.

For directors of companies with online marketplace operations, the risks range from underpaid VAT and unpaid income tax to more serious investigations under COP8 and COP9.

The Data-Sharing Rules That Changed Everything

From January 2024, digital platforms operating in the UK became subject to mandatory reporting obligations that require them to share seller data directly with HMRC. This means HMRC now receives detailed income information about sellers on major platforms automatically, without needing to request it separately.

The data HMRC receives typically includes the seller’s total sales figures, number of transactions, and payment details. HMRC can cross-reference this against declared income in tax returns and VAT records. Discrepancies are now far easier to identify than they were even a few years ago.

VAT Registration: A Common Area of Exposure

One of the most frequent issues HMRC identifies with online marketplace sellers is failure to register for VAT at the right time. The VAT registration threshold currently stands at £90,000 of taxable turnover in a twelve-month period. Sellers who cross this threshold without registering become liable for all VAT that should have been charged from the date registration was required.

This liability falls on the seller, not the platform. HMRC can assess backdated VAT going back several years, and the amounts involved can be significant for businesses with a consistent volume of online sales.

Income Tax and Corporation Tax Risks

Beyond VAT, HMRC is also examining whether sellers are correctly declaring income for income tax or corporation tax purposes. A business that has been booking online sales through its accounts but reducing declared profit through inflated expenses, understated stock, or undisclosed cash receipts is particularly vulnerable under the new data-sharing regime.

HMRC’s Connect system, which analyses data from multiple sources including marketplace reporting, bank records and Companies House filings, can flag inconsistencies that would previously have required a targeted audit to uncover.

When Does an Online Marketplace Investigation Become a COP8 or COP9 Matter?

Most HMRC enquiries into online marketplace sellers begin as routine compliance checks. However, where HMRC identifies patterns suggesting deliberate under-declaration, the investigation can escalate to a COP8 or COP9 procedure.

COP8 is typically used where the amounts involved are significant and the arrangements are complex. COP9 applies where HMRC suspects deliberate fraud. For directors of companies with online trading operations, the risk of escalation is real, particularly where the underpayment spans multiple years or involves offshore arrangements.

What Directors Running Online Marketplace Businesses Should Review Now

If your company trades through online platforms, these are the priority areas to examine:

1. Check your VAT registration date and whether it aligns correctly with when your turnover crossed the registration threshold
2. Review your declared turnover against your platform sales data for consistency
3. Examine whether expenses claimed against online trading income are properly documented and defensible
4. Consider whether any overseas platforms create additional VAT or customs obligations
5. If you suspect there may be discrepancies in past returns, take specialist advice before HMRC makes contact

The Importance of Getting Ahead of HMRC

One of the most important things directors can do in this area is act before HMRC does. Voluntary disclosure, made correctly and through the right channels, typically results in lower penalties than disclosures made after HMRC has already opened an enquiry.

The Common Framework for Disclosure sets out the categories that apply to different types of disclosure, and the category assigned to your disclosure directly affects the penalty rate applied. A self-initiated disclosure generally falls into a more favourable category than one made in response to HMRC pressure.

For specialist advice, speak to an adviser now. For official HMRC guidance, visit the HMRC official website.