How HMRC's £90,000 VAT threshold changes a UK TikTok Shop seller's pricing

What to take away

If you keep the same £30 retail price and you are standard rated, the VAT portion is £5.00 and your net revenue is £25.00. Before registration you kept £30 minus platform fees. After registration you keep £25 minus platform fees. That is a 16.7% cut in gross revenue on the same order.

A seller has a best selling hoodie at £34.99. Before registration the net revenue per unit, after a 9% TikTok Shop commission, is about £31.84. After standard rate registration, if the price stays at £34.99, the VAT portion is £5.83 and net revenue before commission is £29.16.

After the same 9% commission the seller keeps about £26.54. That is a fall of roughly £5.30 per unit.

To restore £31.84 net, the price needs to be about £42.50, which is a 21.5% increase. The seller can also cut the commission by moving some sales to a direct channel, or negotiate a lower product cost.

How the £90,000 VAT registration threshold is measured on taxable turnover

The £90,000 figure is not a target you set, it is a rolling test HMRC applies to your taxable turnover. You add up the value of everything you sell that is not exempt, over the previous 12 months, and if the total goes over £90,000 you must register.

As at 1 January 2026, the registration threshold is £90,000 and the standard rate of VAT is 20%. Both figures are the ones this article uses, so check HMRC's published pages before you reprice a catalogue.

The test looks backwards, not forwards, so a strong November and December can push a seller over without any warning in January.

For a TikTok Shop seller, the 12 month window does not reset on 1 January. It rolls. Every new month adds a month and drops the oldest one. A seller who had a quiet spring can still cross the threshold in autumn if summer trading was strong.

HMRC publishes the registration rules and the forward look test on its when to register for VAT page.

There is also a forward look. If you expect your taxable turnover in the next 30 days alone to go over £90,000, you must register before that happens. This catches sellers who land a large wholesale order or a viral product. The two tests work together: one looks back, one looks forward.

Once you register, the obligation starts from the date you should have registered, not the date you got round to it. VAT is then due on sales from that earlier date. A seller who waits until the paperwork is tidy can end up owing VAT out of money already spent on stock.

The threshold is a UK wide figure. It applies the same in Greater London, the North West and the West Midlands. Sellers in Scotland, Wales and the North East face the same test. There is no regional variation and no small seller discount for a limited company.

A budget that tracks settled revenue to returns helps you see the rolling total before HMRC does.

Registration also changes what you can reclaim. Input VAT on stock, ads, packaging and platform fees can be recovered if you have valid VAT invoices. For a social seller buying inventory from UK wholesalers, that recovery can partly offset the output VAT on sales. It cannot offset it fully if your margin is thin.

What counts as taxable turnover for a TikTok Shop seller's orders and refunds

Taxable turnover is the total value of your taxable sales, not your profit and not your bank balance. For a TikTok Shop seller it includes the retail price the customer pays, before any platform commission is taken out. HMRC explains the general principle on its how VAT works page.

A £30 order is £30 of turnover even if TikTok Shop keeps a fee and you receive £24 in your settlement. The commission is a business expense, not a reduction in turnover.

Refunds reduce turnover, but only in the period they happen. If a customer returns a £30 item in March, March turnover falls by £30. For a rolling 12 month test that matters, because a January spike stays in the total until the following January even if half of it was returned.

Discounted sales count at the price actually paid. A buy one get one free offer still generates turnover on both items if both are supplied. A free gift with purchase is usually part of a single supply, so the turnover is what the customer paid for the bundle.

Shipping charged to the customer is normally part of the taxable turnover. If you charge £3.99 delivery, that £3.99 is taxable at the same rate as the goods. Postage you pay to a courier is an expense, and it can be reclaimed if you have a valid VAT invoice.

Some items are outside the scope or exempt. Second hand clothing sold as a principal can use a margin scheme, which changes the calculation. Digital downloads and ebooks are taxable at the standard rate. Food, children's clothes and some health items can be zero rated. The rates differ by product, so repricing needs the right rate per line.

Platform reporting adds a second record. TikTok Shop settlement reports show gross sales, refunds, fees and net payout. Those reports are not a VAT return. They are evidence. A seller should reconcile them to their own sales ledger monthly, because the platform total and the HMRC total will not match if returns are handled in a later period.

Registering with HMRC and choosing between the standard and flat rate schemes

Registration is done through HMRC's online service. You need your business details, your expected turnover and a start date. A sole trader uses a National Insurance number, a limited company uses its Companies House registration. Registration is not the same as filing: it starts a cycle of VAT returns, usually quarterly.

The main choice is between the standard scheme and the flat rate scheme. Under the standard scheme you charge 20% on standard rated sales and reclaim input VAT on business purchases.

Under the flat rate scheme you charge 20% to customers but pay HMRC a lower percentage of your VAT inclusive turnover, and you normally cannot reclaim input VAT on most purchases.

The flat rate percentage depends on your trade sector. A retail or wholesale business that sells goods generally has a lower flat rate percentage than a service business. The scheme is designed to simplify small businesses, not to make larger sellers better off. Once your VAT inclusive turnover goes over £150,000 you must leave the scheme.

For a TikTok Shop seller with high stock costs, the standard scheme is often better because input VAT on inventory is recoverable. For a seller with low stock costs and high margins, the flat rate scheme can be simpler and cheaper to administer. The decision should be tested with your own numbers, not copied from a forum.

There is also the annual accounting scheme, which lets you file one return a year with instalments. It suits sellers with predictable sales. It does not suit sellers with lumpy, viral demand, because the instalments are based on last year's liability.

A limited company director should also check whether registration affects dividend planning. VAT is a business tax, but the cash flow timing can affect what can be distributed. A budget that separates cash, contribution and order maturity makes that timing visible.

Repricing a catalogue when 20% VAT has to come out of the same retail price

The hardest part of registration is arithmetic.

To keep the same net revenue, the VAT inclusive price must rise. If you want £30 net, the VAT inclusive price is £36.00 at 20%. That is a 20% increase for the customer. Whether the market accepts that depends on the product and the competition.

At 20%, the VAT fraction is 1/6, so you can pull the VAT out of a VAT inclusive price by dividing it by six. A £30.00 price holds £5.00 of VAT, and a £36.00 price holds £6.00. That one step speeds up repricing across a long catalogue.

The alternative is to absorb the VAT and accept lower margin. That is a valid choice for a short period, but it cannot last if the margin was thin. A seller who was making 10% net margin before registration is making a loss after it unless something changes.

VAT rates are not all 20%. A mixed catalogue may include zero rated children's clothes, reduced rate energy products or exempt items. The rates are set out by HMRC on its VAT rates on different goods and services page. Repricing line by line with the correct rate is more accurate than applying 20% to everything.

A second worked example for a zero rated line. A children's t-shirt at £12.99 is zero rated, so no VAT is added and no VAT is reclaimed on the purchase. The price can stay at £12.99.

The margin is unaffected by registration, but the input VAT on the purchase is not recoverable, so the cost base is slightly higher than a standard rated item.

A pricing table helps. The table below shows the same £30 retail price under three scenarios.

The flat rate row is an example only. The actual flat rate percentage depends on the trade sector and the scheme rules. It shows why the flat rate scheme is attractive for low stock cost sellers: less VAT is paid, but input VAT is usually not recoverable.

Invoicing, VAT records and Making Tax Digital digital links

Once registered, you must issue VAT invoices for business customers and keep records of every sale. For consumer sales on TikTok Shop, the platform receipt is not a full VAT invoice. If a customer asks for a VAT invoice, you must provide one with your VAT number, the rate, the VAT amount and the total.

You must keep records for a minimum of six years. They include sales invoices, purchase invoices, credit notes, bank statements and platform settlement reports. HMRC can ask to see them. A seller who only has screenshots of the TikTok Shop dashboard is not keeping proper records.

Making Tax Digital for VAT requires digital records and digital links between the records and the VAT return. A spreadsheet is allowed, but the figures must be transferred digitally, not retyped. HMRC explains the requirement on its Making Tax Digital for VAT page.

Digital links mean the sales data flows from the source system to the return without manual re entry. Copying a total from a settlement report into a spreadsheet by hand and then typing it into the return is not a digital link. Using an API, a CSV import or accounting software that pulls the data is.

For a small seller, the practical route is accounting software that connects to the bank and to the TikTok Shop settlement reports. The software holds the digital records, calculates the VAT and submits the return. The seller reviews the figures and approves them.

A simple checklist for the first VAT quarter:

How platform reporting and settlement reports feed the VAT return

TikTok Shop reporting gives you gross sales, refunds, platform fees, affiliate commissions and net payout. The VAT return needs output VAT on gross sales and input VAT on allowable purchases. The settlement report is the bridge between the two.

Start with gross sales. That is your output VAT base for standard rated lines. Subtract refunds that happened in the same period. Then calculate output VAT at the correct rate per line. Do not apply 20% to the whole gross figure if part of the catalogue is zero rated.

Next, list the input VAT you can reclaim. Platform fees usually carry VAT, and the fee invoice from TikTok Shop should show it. Shipping labels, packaging, ads and software subscriptions may also carry VAT. You need a valid VAT invoice for each.

Affiliate commissions paid to creators are a business expense. If the creator is VAT registered, they charge VAT and you can reclaim it. If they are not, there is no VAT to reclaim, but the commission is still a deductible expense for income tax or corporation tax.

A monthly reconciliation should show three totals: gross sales per TikTok Shop, gross sales per your ledger, and the difference. The difference should be explainable: timing, refunds, or a misposted fee. If it is not explainable, the VAT return is built on sand.

Settlement timing matters. TikTok Shop may settle an order in the next period. Your ledger might record the sale when the order was placed. For VAT, the tax point is usually the earlier of invoice or payment, so the two systems can disagree by a few days. Reconcile monthly to keep the gap small.

A seller running several channels, for example TikTok Shop plus a website plus a market stall, needs one combined VAT return. Each channel's reporting feeds the same return. That is where VAT evidence from platform reports becomes part of the audit trail, not just a management report.

Margin, exemption and partial exemption questions for mixed catalogues

Some sales are exempt from VAT. Financial services, some education and certain health products are examples. If you sell both taxable and exempt items, you are partially exempt. That means you cannot reclaim all the input VAT, only the portion that relates to taxable sales.

Partial exemption has a standard method and a special method. The standard method uses a ratio of taxable turnover to total turnover. A seller with a small exempt side can usually reclaim most input VAT.

A seller with a large exempt side may find the recovery is limited. HMRC sets out the rules on its exemption and partial exemption page.

The special method is agreed with HMRC and uses a formula built around your own business. It suits a seller whose turnover ratio gives a distorted answer. You need HMRC's agreement before you use it.

HMRC also applies a de minimis test. If the input VAT tied to exempt supplies is no more than £625 a month on average and less than half of your total input tax, it is normally treated as recoverable. That keeps many small mixed catalogues out of a full partial exemption calculation.

The calculation runs for each VAT period and is then adjusted once a year. The annual adjustment corrects the periods where the turnover ratio moved.

Recovery also depends on what a cost supports. Input VAT on stock, packaging and ads behind taxable sales is recoverable. Input VAT on costs that only support exempt sales is not. Costs used for both have to be apportioned.

For most TikTok Shop sellers, partial exemption is not the main issue because most goods are standard rated. It becomes relevant if you sell digital courses, memberships or financial products alongside physical goods. It also matters if you sell second hand goods under a margin scheme.

Whether a course or a membership is exempt depends on who supplies it and on the conditions in the rules, so the rate of each line has to be checked before launch.

Partial exemption feeds into margin. When only part of the input VAT is recoverable, contribution per order falls on the taxable lines too, because shared costs are not fully reclaimed.

The margin scheme for second hand goods calculates VAT on the difference between buying and selling price, not the full sale price. It reduces the VAT due, but it requires detailed stock records and it cannot be used with the flat rate scheme. A reseller of vintage clothing should check whether the margin scheme applies before repricing.

Mixed catalogues also raise the question of mixed supplies. A bundle of a taxable item and a zero rated item is usually treated as a single supply taxed at the rate of the main item. The main item is a matter of fact, not preference. Getting it wrong can mean underpaying VAT.

Margin planning should use explicit formulas for contribution per order, so that the VAT effect is visible next to the platform fee and the shipping cost. A seller who only looks at headline revenue will not see the margin problem until the first VAT bill.

If you sell through several channels with different fee structures, comparing social commerce pricing models on one equation helps show which channel still works after VAT. The channel with the lowest fee is not always the most profitable once VAT and returns are included.

A pricing worksheet for the month the threshold is crossed

The month the threshold is crossed is the month the pricing decision has to be made. The worksheet below uses a simple sequence. Fill it in for each product line before you change any prices.

A worked example for the month of crossing. A seller sells a candle at £18.00. The VAT rate is 20%. The VAT portion at the current price is £3.00, so net revenue is £15.00. The TikTok Shop commission is 9%, which is £1.62, and shipping costs £2.50. Contribution per order is £10.88.

After registration, if the price stays at £18.00, net revenue is still £15.00, but the seller can now reclaim input VAT on the wax, jars and shipping. Suppose the input VAT recovery is £0.80 per order. Contribution becomes £11.68, which is better than before. That happens when input VAT recovery is large relative to output VAT.

If input VAT recovery is small, say £0.20 per order, contribution becomes £11.08. That is still better than the pre registration £10.88, because before registration the input VAT was a cost the seller could not reclaim. Registration can improve margin on high input cost products.

The real damage happens when the seller holds the price and has low input VAT recovery. A service based social seller with almost no stock has little to reclaim. For that seller, the price must rise or the margin falls.

A monthly worksheet should also track the rolling 12 month turnover. Once you are registered, you stay registered until your turnover falls below the deregistration threshold, which is lower than the registration threshold. Deregistration is a separate decision and it has its own timing rules.

Finally, keep the worksheet with your VAT records. If HMRC asks why a price changed, the worksheet shows the calculation. That is better evidence than a memory of a busy month.

Common questions