Indian Sellers in the UK: Tax Rules Under the Trade Deal

The recently signed UK–India trade agreement opens new opportunities for Indian online sellers looking to expand into the UK market through platforms like Amazon UK, Etsy, and eBay. While the deal eliminates or reduces customs duties on a wide range of products, Indian sellers must remain aware that UK domestic tax rules—particularly Value Added Tax (VAT)—still apply. This article outlines the key tax and compliance requirements Indian businesses need to understand to fully benefit from the new trade terms while avoiding unexpected liabilities.

Customs Duties and Trade Facilitation

Under the new UK–India trade agreement, nearly all Indian exports to the UK will be duty-free. UK officials estimate that about 99% of Indian goods by value will have tariffs removed. Key product categories—such as apparel, footwear, jewelry, and gemstones—have seen import duties eliminated or significantly reduced. For example, an Indian artisan selling garments or jewelry to UK buyers through Amazon or Etsy can now offer more competitive prices without the burden of customs duties at the border.

In addition to tariff cuts, the agreement streamlines customs procedures to make trade faster and more efficient. Both governments have committed to paperless customs processes: rules and declarations must be accessible online in English, and traders may defer or consolidate duty payments. Goods not requiring inspection must be cleared within 48 hours of arrival. These facilitation measures—paired with zero or reduced tariffs—help Indian small and medium-sized enterprises (SMEs) lower costs and avoid customs-related delays.

VAT and Indirect Tax Obligations

Despite relief from import duties, UK VAT rules continue to apply. Indian sellers must comply with UK VAT law when selling to UK-based customers. For shipments valued at £135 or less, online marketplaces like Amazon or eBay collect and remit VAT directly at the point of sale. However, for shipments over £135, the overseas seller must register for UK VAT and handle import VAT and any applicable duties themselves.

If an Indian seller uses fulfillment services in the UK (e.g., Amazon FBA), storing inventory in UK warehouses, they’re considered to hold inventory in the country and are required to register for and report UK VAT. In short, the trade deal doesn’t affect VAT obligations: Indian sellers still need to follow standard UK VAT rules, which include registration, invoicing, and regular reporting. Fortunately, marketplace platforms often offer built-in VAT compliance tools to help sellers meet their obligations.

Income Tax and Double Taxation

The free trade agreement does not change the existing income tax treaty between India and the UK. Indian sellers will typically be taxed on their profits in India unless they establish a “permanent establishment” (such as a branch or office) in the UK. Any UK-sourced income will fall under the existing double taxation agreement, which prevents income from being taxed twice.

A related element of the deal is the social security agreement: Indian employees temporarily working in the UK (for up to three years) will continue contributing to India’s social security system instead of the UK’s. However, this provision applies to employees, not e-commerce sellers, and doesn’t affect online sales taxation.

Digital Trade and E-Commerce Protections

The agreement includes a dedicated chapter on digital trade, aimed at supporting online commerce. It ensures the legal validity of electronic contracts and prohibits policies like forced technology transfer or data localization. Both countries agreed not to require data to be stored locally and to maintain cross-border data flows.

For Indian SMEs selling on UK e-commerce platforms, these commitments provide greater legal certainty when conducting online transactions. Sellers can expect digital orders, payments, and invoicing to be recognized and processed smoothly. Crucially, the trade deal does not impose any new UK digital taxes—VAT rules on digital sales remain governed by existing UK legislation.

Compliance and Documentation Requirements

To benefit from preferential tariff treatment, Indian exporters must comply with the deal’s rules of origin. Each shipment should be accompanied by a valid Certificate of Origin, often issued electronically by authorized Indian agencies. Only products meeting specific content thresholds—like textiles with at least 40% Indian value-added—qualify for zero-duty status.

Sellers must ensure accurate Harmonized System (HS) codes are used and should maintain detailed invoices and origin records for UK customs. Even duty-free shipments require a customs declaration in the UK, so exporters should obtain a UK EORI (Economic Operator Registration and Identification) number and file import declarations. Indian sellers must also comply with UK product safety and labeling regulations—for example, proper care labeling for garments.

What This Means for Indian Online Sellers

In summary, the UK–India trade deal makes UK marketplaces much more accessible and profitable for Indian sellers. Lower or eliminated tariffs mean reduced costs for UK consumers and greater competitiveness for Indian-made goods. But to take full advantage, Indian businesses must still manage VAT compliance, customs procedures, and product regulations.

Registering for UK VAT, using marketplace VAT services, keeping organized records, and filing returns on time are all essential. In many cases, working with a local tax representative or logistics provider familiar with UK import processes can simplify operations and reduce risk.

Final Thoughts

The UK–India free trade agreement is a landmark opportunity for Indian entrepreneurs and e-commerce sellers to expand into one of the world’s most lucrative markets. While the removal of tariffs provides a significant advantage, success will ultimately depend on a seller’s ability to stay compliant with UK tax laws and customs regulations.

Indian sellers using platforms like Amazon UK, Etsy, or eBay should approach tax compliance as a strategic business priority. Understanding VAT obligations, leveraging marketplace tools, and ensuring proper documentation can help sellers avoid penalties and build trust with UK buyers. With the right preparation, Indian e-commerce businesses are well-positioned to grow in the UK market under this new trade framework.