2025 UK E-commerce tax changes: Essential updates every online seller must know

Post-pandemic and post-Brexit, the UK’s e-commerce industry continually strives to comply with all the changing tax obligations. It is all the more essential as the 2025 tax year brought about many transformations, seemingly affecting digital entrepreneurs, international traders, dropshippers, and small business owners across the nation. Hence, this is an in-depth guide, outlining almost every aspect that online sellers must be aware of regarding critical tax changes, including HMRC compliance obligations, VAT modifications, corporation tax updates, and customs rules.

VAT threshold modifications and digital compliance

Since April 2024, the VAT registration in the UK has changed the threshold for the first time from £85,000 to £90,000 in taxable turnover over a rolling one-year period, with the deregistration limit rising from £83,000 to £88,000.

This change brought about mandatory VAT registration requirements for quickly scaling e-commerce businesses. However, crossing this new threshold also involves crucial compliance criteria under the MTD (Making Tax Digital) regime, including the use of an HMRC-compatible tool for VAT returns and maintenance of digital records, where any non-compliance events end up with legal penalties. 

Now, as an online seller, if you are unsure of your capability to navigate these changes in digital systems, you may hire an e-commerce accountant for necessary guidance on the subject.

Reassessment of the De Minimis Rule

Under the De Minimis rule, goods valued below £135 can enter the UK without having to pay any customs duties. However, this exemption faced severe criticism from domestic sellers, viewing it as an unfair action from international retailers on digital platforms like Shein, Temu, and Aliexpress. 

Hence, as of 2025, the UK government is envisioning reviewing this rule to promote an equal playing field for all. If indeed changed, most low-cost goods or imports will likely face custom declarations, like new processing fees and import VAT, which would influence the businesses highly dependent on overseas suppliers for low-ticket items.

Sellers can navigate this change by:

• Pricing products considering the additional customs costs.
• Exploring UK-based or domestic suppliers.
• Consulting with an expert Shopify UK accountant to revalue import logistics and profit margins.

Brexit Fallout: Import/export tax complexities

Businesses in the UK importing from or exporting to the EU market are now bound to navigate an extra layer of red tape. This fallout of frictionless trade implies:

• Specific goods will need certificates or licenses.
• Mandatory customs declarations.
• Import VAT is payable at the point of entry, except when a deferred accounting system is used.

The IOSS (Import One Stop Shop) regulates the VAT collection for any goods below €150 or less sold to EU customers. UK businesses registering for IOSS can do done in any country for VAT collection at the point of sale and avoid customs delays. However, not registering for IOSS or VAT mishandling in any way can result in fines, delivery delays, and ultimately, customer dissatisfaction. This is why it is highly advised to work with an e-commerce accountant to ensure proper and timely registration and seamless tax obligations management.

Corporation tax: Sole traders vs. Limited companies

For businesses with profits exceeding £250,000, the corporation tax is set at 25%, while for turnovers between £50,000 and £250,000 is set at a tapered rate of tax. Also, businesses with £50,000 earnings have to pay a minimal profit rate of 19%. 

This shift is fundamental for online retailers to decide between acting as an incorporation or as a sole trader. Because corporations, while receiving tax benefits for higher earners, does have more regulatory obligations, such as annual accounts and confirmation statements. 

So, here’s a quick distinction between the two:

If you cannot decide by yourself, a Shopify UK accountant can help you get out of the dilemma by analyzing the best business structure based on long-term goals, annual turnover, and profit margins.

Digital Services Tax (DST) developments

In effect, since 2020, the 2% DST in the UK applies to most global tech giants with annual turnovers exceeding £500 million, of which a minimum of £25 million is UK-derived. Even though the DST’s direct impact is minimal on most small online sellers, the long-term effects, however, may lead to price hikes on online and marketing tools.

Digital sellers heavily relying on e-commerce platforms like Facebook Shops, Google Ads, or Amazon might encounter indirect cost pressures. Therefore, when budget planning, ensure to monitor the position of these platforms on DST-associated expenses.

Customs duties for overseas sales

Interested in expanding your sales overseas? In that case, you must consider the customs duties applicable to shipments to non-UK destinations. Whether you are exporting to the US, Asia, or the EU, local VAT/GST and duties can apply variably. The key to navigating these intricacies is maintaining transparency with accurate cost classification codes and your customers. Any error with the HS codes can lead to incorrect duty rates, delays, and fines.

Updated MTD and ITSA rules for record-keeping

HMRC’s MTD regime is evolving. As per the new mandate, from April 2026, landlords and self-employed individuals with annual earnings exceeding £50,000 will have to adhere to MTD for ITSA (Income Tax Self-Assessment). Those with earnings exceeding £30,000 will have to follow the same in 2027. 

This new mandate implies:

• Maintenance of digital records of each business's income and expenses.
• Submitting quarterly updates to HMRC on time.
• Filing final annual declaration.

Failure to comply will lead to repercussions. 

So, final thoughts on tax efficiency strategies for 2025 and later?

The 2025 tax year introduced major shifts for UK e-commerce sellers. But with proactive tax planning, navigating this environment is easy. Some of the key strategies include:

• Maximizing allowable deductions to claim expenses for advertising, web hosting, home office, and packaging.
• Reviewing prices to consider rising VAT and applicable customs costs.
• Limited business owners can strategically optimize profit extraction by using salaries, dividends, and pensions. 
• Innovating R&D credits are likely to qualify for tax reliefs.
• Re-assess warehousing through UK-based 3PLs, avoiding customs issues.

Applying these strategies and working with a seasoned Shopify UK accountant or e-commerce accountant can simplify the whole scenario efficiently.