VAT Mistakes eCommerce Brands Make & How to Avoid Them
Running an eCommerce brand in the UK means VAT is never far from the conversation. But for many founders, VAT feels like one of those “I’ll deal with it later” admin jobs.
The problem is, later can turn into costly penalties, unexpected cash gaps, or even a full-on HMRC headache.
Here are some of the most common VAT mistakes eCommerce brands make, and how you can avoid them.
1. Missing the VAT registration threshold
Plenty of founders put this off until the very last moment. The UK threshold is £90,000 turnover (12-month rolling, not calendar year).
If you don’t register on time, HMRC will backdate your liability, meaning you’ll owe VAT on past sales, often with penalties on top.
How to avoid it:
Track turnover monthly, not yearly.
Remember it’s a rolling 12 months, not just your financial year.
If you’re close to the threshold, prepare early.
2. Misclassifying sales (domestic vs international)
Selling across borders is where VAT trips up most eCommerce brands.
EU distance selling rules, the Import One-Stop Shop (IOSS), and marketplace collection all add complexity.
How to avoid it:
Understand where VAT is due (country of sale vs country of customer).
Check if platforms (like Amazon) are collecting VAT on your behalf.
Use your accounting software to separate domestic, EU, and rest-of-world sales.
3. Forgetting marketplace VAT rules
If you sell on Amazon, eBay, or Etsy, VAT works differently. Often, the platform collects and pays VAT directly to HMRC.
But many founders accidentally account for this VAT again in their returns, leading to errors or overpayments.
How to avoid it:
Review VAT reports from marketplaces before filing.
Adjust your bookkeeping setup to prevent double-counting.
4. Poor record-keeping
VAT mistakes often come down to missing or inconsistent records: invoices, receipts, shipping paperwork.
When HMRC checks, “I can’t find it” won’t cut it.
How to avoid it:
Use digital tools like Xero to capture invoices and receipts.
Keep separate codes for VAT-able, zero-rated, and exempt sales.
Set aside time each week for bookkeeping, not once a quarter in a rush.
5. Not planning VAT into cash flow
VAT isn’t your money, but too many founders treat it like extra cash in the bank.
The result? When the VAT bill arrives, the cash isn’t there.
How to avoid it:
Move VAT collected into a separate bank account.
Use cash flow forecasting to see when VAT bills fall due.
Avoid relying on VAT money for day-to-day spend.
Where founders get peace of mind
Yes, VAT can be complex, especially with multiple platforms, international sales, and rapid growth.
That’s why many eCommerce founders lean on finance partners like LFS.
We:
Track your VAT position and registration obligations.
Set up your accounting system correctly for Shopify, Amazon, and beyond.
File accurate returns, stress-free.
Help you plan VAT payments into your wider cash flow.
VAT doesn’t need to be a guessing game. With the right systems and support, it becomes just another part of running smoothly.
Closing thought
VAT mistakes aren’t just admin slips, they directly hit your cash flow, growth, and headspace.
Getting it right means fewer surprises, stronger margins, and confidence to scale.
If you want VAT off your plate and handled properly, let’s chat about how LFS can help. Book a call.