Black Friday sellers: VAT follows what the customer pays

VAT on a Black Friday sale is worked out on what the customer actually paid, plus anything a third party paid you towards it. Cut your own price and the VAT falls with it. Let a marketplace fund the discount and it does not. With Black Friday on 27 November, that difference decides whether your next VAT return is right.

Your own discount: VAT on the lower price

HMRC's VAT guide is plain about it. If you offer an unconditional discount and the customer pays the discounted amount, VAT is based on the discounted amount. A "we pay your VAT" offer is treated the same way: it is simply a discount, and VAT is due only on the reduced price.

To find the VAT inside a price you charge a UK customer at the standard rate, divide it by six. Our guide to working the VAT out of a VAT-inclusive price shows the arithmetic on an example listing.

A voucher the platform pays for: VAT on the full price

Some promotions are funded by the marketplace rather than the seller. The customer pays less, and the platform tops up what you receive. HMRC's guidance on business promotions says a payment from anyone other than your customer "is still part of the consideration for the supply to the customer". So VAT is due on the customer's payment plus the top-up.

If the top-up arrives inside a payout, netted against fees, rather than as a line of its own, booking the payout and nothing else makes the VAT come out too low. Breaking each payout back into sales, fees and top-ups is how to catch it.

Multi-buys: one price, sometimes two VAT rates

"Buy one, get one free" and "three for two" are one sale at one price. The free item carries no extra VAT, because the price paid covers everything in the deal.

The catch comes when the items carry different VAT rates. HMRC says you must then apportion the price between them, and its VAT guide gives a method based on what each item normally sells for.

Giveaways: the £50 rule

Goods given away with no purchase at all, such as a prize in a competition for your followers, count as business gifts. No VAT is due as long as the gifts to any one person cost you £50 or less, excluding VAT, in a 12-month period. Go over that and VAT is normally due on the cost of all of them, if you could reclaim the VAT when you bought them.

What it looks like on one hoodie

Illustration, not a real client. Kemi sells streetwear from a unit in Tottenham, through her own Shopify store and two marketplaces. She is VAT registered. Her best seller is a £60 hoodie, VAT included at the current 20 per cent standard rate, so £10 of every full-price sale is VAT.

• Her own 25 per cent discount. The customer pays £45, so the VAT is £7.50.

• A £15 voucher funded by a marketplace. The customer pays £45 and the marketplace pays Kemi £15. The VAT is on £60, so it stays at £10. If she books only the £45, she declares £7.50 and is £2.50 short on every order. Across 400 voucher orders, that is £1,000 missing from the return.

• A free children's hoodie with an adult one. The children's hoodie normally sells for £30 and qualifies for the zero rate; she takes £60 for the pair. Split by normal prices, the adult hoodie is £60 of £90, or two-thirds. So £40 of the £60 is standard-rated and carries £6.67 of VAT, and the other £20 is zero-rated. Treating the whole £60 as standard-rated would have meant £10 of VAT, £3.33 more than she owes.

None of that changes what the customer sees. It changes what Kemi owes.

Before 27 November

1. List every promotion you plan and note who pays for it: you, or the platform.

2. Find the report each platform gives for funded promotions, so the top-ups can be matched to orders.

3. For discounts you fund yourself, check that your shop's tax settings charge VAT on the discounted price, not the list price.

4. Keep the normal prices used to apportion any mixed-rate bundle.

5. Keep a list of giveaways by recipient, with what each one cost.

If you are not yet registered, the top-ups count towards your taxable turnover for the VAT registration threshold too. If you are registered with a quarter ending on 31 December, the return and payment are due by 7 February 2027. Black Friday sets the prices. That return is where they are tested.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for ecommerce sellers. He grew up in West London and began his career in investment banking finance at Barclays, before going full-time on Zmartly in 2020. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Julian Hochgesang on Unsplash.