E-commerce has never been bigger, or more exposed. Sellers are chasing growth while HMRC quietly tightens the net.
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Since 2025, online marketplaces are required to report seller income data directly to HMRC. That means every sale, fee, and refund you process is visible and easily cross-checked against your tax and VAT returns.

For many sellers, this is the year the numbers will finally be tested. With margins already tight and VAT rules more complex than ever, getting your reporting wrong is no longer a small risk. It’s a profit-killer. The businesses that thrive from here are the ones that treat compliance as a growth tool, not a back-office task.

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The E-commerce Landscape: Pressure and Precision

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HMRC’s focus on e-commerce isn’t new, but the level of data access they now have is. The combination of marketplace reporting, automated data matching, and AI-driven compliance checks means there’s nowhere left to hide. For online sellers, that brings two challenges. First, profitability. After marketplace fees,advertising spend, shipping, and returns, every percentage of VAT accuracy matters.

Second, complexity. Selling across the UK, EU, and US means different thresholds, zero-rating rules, and import/export treatments that can change overnight.

Before you can fix it, you have to understand where it’s going wrong.

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The Three Mistakes That Cost Sellers the Most

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In our work with hundreds of online sellers, we see the same three issues repeatedly, each one capable of draining cash, damaging records, or drawing HMRC attention.

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1. Declaring revenue incorrectly

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The most common error we uncover is sellers reporting only what lands in the business bank as turnover. But those deposits are after marketplace fees and refunds. Your true sales are higher and so are your VAT implications.

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Under-declaring turnover distorts every part of your accounting. It makes VAT returns inaccurate, financial reports misleading, and HMRC data mismatched. In short, you’re either overpaying VAT or under-declaring income, neither of which ends well.

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2. Mis-coding products and VAT rates

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VAT coding is deceptively simple. Many sellers apply the standard rate to everything, evenwhen some goods are zero-rated or outside the scope. Others mis-handle exports, treating them like UK sales when they should be zero-rated. This doesn’t just mean paying too much VAT. It creates unreliable data, meaning profit reports, forecasts, and performance tracking can’t be trusted.
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We recently reviewed four years of sales data for a client whose previous accountant had mis-coded sales and expenses. The result? £120,000 reclaimed and a clean slate with HMRC. Getting VAT coding right is about knowledge & systems.

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3. Expanding too fast, without the right structure

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International expansion looks like progress: new markets, higher turnover, bigger brand. But done too soon, or without the right structure, it can double your workload and halve your margins. The moment you store stock abroad or cross distance-selling thresholds, you face new VAT registrations, filings, and reporting rules. Add currency conversions, foreign returns, and differing tax years, and what looked like growth quickly becomes admin overload.

Expansion is a huge opportunity, but only if your VAT, systems, and logistics evolve with it.

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The Compliance-to-Profit Playbook

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The fix isn’t complicated, but it does need discipline. At COPA and LinkMyBooks, we see compliance as the foundation of profit, not a chore. Here’s the four-move playbook we use to keep sellers compliant, confident, and scalable.

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1. Build a single source of truth

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Start with accurate data. Your accounting system should reflect gross sales from each marketplace, not just what hits the bank. Automated tools like LinkMyBooks ensure fees, refunds, and VAT are mapped correctly from the start, no more guesswork at quarter-end.

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2. Get VAT that stands up to questions

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Every product, territory, and channel should have the right VAT treatment built in. That means zero-rated exports are recorded properly, mixed-rate goods are split, and overseas sales are coded accurately. If HMRC cross-checks your data tomorrow, you can stand behind every figure.

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3. Grow with clarity

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Before expanding into new markets, model the VAT impact. Know where stock will sit, when you’ll need to register, and what filings are required. A planned expansion avoids the financial drag and compliance chaos that catch so many sellers off guard.

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4. Stay ready for what’s next

The rules are changing faster than most sellers realise. Marketplace data reporting, digital VAT compliance tools, and stricter late-filing penalties are all in motion. Regular reviews, internal training, and professional oversight turn compliance from a cost into a competitive edge.

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This isn’t about selling software or services, it’s about building a system that protects your profit and gives you the freedom to scale.

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The Payoff: Control, Confidence, and Growth

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The truth is simple: the most expensive VAT mistakes are made by businesses that don’t realise they’re making them.

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When your data is right, your VAT correct, and your growth structured, everything else gets easier. You can see true margins, make informed decisions, and scale without the fear of what HMRC might find later.
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Compliance done properly isn’t defensive, it’s empowering. It’s what separates sellers who build valuable, sale-ready brands from those who simply survive another year.
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If you’re serious about growth, don’t wait for an enquiry to prove your systems. Fix them now.

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For deeper guidance on VAT in the e-commerce sector, read the full E-commerce VAT Guide or get in touch to review your current setup.

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Because in today’s e-commerce world, the real measure of success isn’t just how much you sell, it’s how much you keep.