If you sell e-books, plugins, templates, presets, or software licences through WooCommerce or Easy Digital Downloads (EDD), your VAT does not work the same way an Amazon or eBay seller's does. There is no marketplace sitting between you and your customer, so there is no one collecting VAT on your behalf and no platform filing a report to HMRC about your sales. You self-declare everything.
That single fact changes the whole picture. A misconfigured plugin, a wrong tax class, or a forgotten EU registration is your problem, not the platform's. And the famous "£135 rule" you have probably read about? It mostly does not apply to you, because that rule is about physical goods crossing a border, not digital files.
This guide walks through how VAT actually works on WooCommerce and EDD digital downloads for the 2025/26 tax year: UK rules first, then the EU One Stop Shop (OSS), then where the £135 rule fits and where it does not. Every rate and rule below is linked to its gov.uk source.
What counts as a digital download for VAT?
A digital download is a "digital service" for VAT when it is delivered automatically over the internet with minimal or no human intervention. That includes downloads of software and software updates, e-books and other digitised documents, images, music, films, and games. HMRC's guidance lists these explicitly (gov.uk).
The "human intervention" test is the one people trip on. A pre-recorded online course made of videos and downloadable PDFs is a digital service. A live webinar with a real tutor on the call is not, because a person is delivering it in real time. If a human has to do something each time to fulfil the order, it usually is not a digital service.
Why this matters: digital services have their own place-of-supply rules, and those rules decide which country's VAT you charge.
Does WooCommerce VAT work differently from Amazon or eBay?
Yes, and this is the heart of it. WooCommerce and EDD are self-hosted software running on your own site, so there is no marketplace operator in the transaction. Three consequences follow.
First, no deemed supplier. On an online marketplace, the platform can be treated as the supplier and made liable for the VAT (see the £135 section below). On your own WooCommerce store, you are the supplier for every sale.
Second, no platform report to HMRC about you. The UK's reporting rules for digital platforms make qualifying marketplaces report seller income to HMRC each year (gov.uk). A self-hosted store you own is not a third-party platform reporting on you, so no such report is filed for your sales. The flip side is that nothing is pre-populated for you. You declare it all yourself.
Third, VAT is plugin-driven. Your store charges the rate your tax settings tell it to. If the tax class, location logic, or EU rules in your plugin are wrong, the wrong VAT goes out the door, and HMRC still expects the right amount. Misconfiguration is the single most common failure mode we see on self-hosted stores.
How is VAT charged on UK sales of digital downloads?
If you are VAT-registered and you sell a digital download to a UK consumer, the supply is liable to UK VAT (gov.uk). Most digital products are standard-rated at 20% for 2025/26 (gov.uk).
There is one important exception. Since 1 May 2020, supplies of e-books, e-newspapers, e-magazines, e-journals and similar electronic publications are zero-rated, the same as their printed versions (gov.uk). Audiobooks are not included and stay standard-rated, and an e-publication that is more than half advertising, audio or video is standard-rated too.
So in WooCommerce you may genuinely need two tax classes: standard 20% for plugins, templates and software, and zero rate for a qualifying e-book. Putting an e-book in the standard class overcharges your customers; putting a plugin in the zero class underdeclares to HMRC.
Do you have to be VAT-registered at all? You must register if your VAT taxable turnover goes over £90,000 (the threshold from 1 April 2024) (gov.uk). Below that, UK registration is voluntary. But note the EU rules below work very differently on thresholds.
How does EU VAT and the One Stop Shop (OSS) work?
For a cross-border digital service sold to a private consumer, the place of supply is the consumer's location, meaning where they usually live (gov.uk). Sell an e-book to a consumer in Germany and German VAT is due; sell the same file to a consumer in France and French VAT is due.
There is no minimum threshold for these cross-border B2C digital sales. One €5 download to one EU consumer can create an EU VAT obligation. HMRC's guidance is clear that a UK business supplying digital services to EU consumers must either register for the Non-Union VAT MOSS scheme in an EU member state, or register for VAT in each member state where it has consumers (gov.uk).
Since Brexit, UK businesses can no longer use the UK's own MOSS. The practical route for most sellers is the Non-Union One Stop Shop (often still called MOSS): you register in one EU member state of your choice, charge each customer their home country's VAT rate, and file a single OSS return that pays the VAT over to each country. It saves registering separately in 27 states.
For business-to-business sales it is different. If your EU business customer gives you a valid VAT number, you treat it as B2B and the reverse charge generally applies, so you do not charge the VAT. If no VAT number is given, treat it as B2C (gov.uk). Your WooCommerce checkout needs a working VAT-number field and validation to get this right.
What about evidence of where the customer lives?
Because the rate follows the consumer's location, you have to be able to prove that location. In practice that means capturing and keeping evidence such as billing address, the IP address of the device, and the country of the card issuer or payment account. Your store should log these for every digital sale, because if you cannot evidence the location you cannot defend the rate you charged.
Where does the £135 rule fit in?
This is the most common confusion, so let us be precise. The £135 rule is about goods, not services.
When goods in a consignment worth £135 or less are sold from overseas directly to a UK customer, UK supply VAT is charged at the point of sale instead of import VAT, and the overseas seller registers for UK VAT and accounts for it. The £135 is the consignment's intrinsic value, excluding transport, insurance and taxes, and over £135 normal import VAT and customs rules apply instead (gov.uk). The same gov.uk guidance states plainly that these rules are for goods.
Digital downloads are services, not goods. They do not cross a customs border and there is no consignment to value, so the £135 import rule simply does not apply to a WooCommerce e-book, plugin or software licence. The rule that governs your digital sale is the place-of-supply rule above, not the £135 rule.
Where the £135 rule does bite is the marketplace contrast. When goods of £135 or less are sold through an online marketplace, the marketplace is made liable for the VAT and accounts for it (gov.uk). On your self-hosted WooCommerce store there is no marketplace, so even if you did sell physical goods, that deemed-supplier shift would not happen and the obligation would sit with you. For your digital downloads, the takeaway is simpler: ignore the £135 rule and get the place-of-supply rules right.
Illustrative example: a UK seller using WooCommerce and OSS
This is an illustrative example with current figures, not a real client.
Maya runs a self-hosted WooCommerce store from the UK selling a WordPress plugin and a how-to e-book. She is UK VAT-registered and registered for the EU Non-Union OSS in Ireland. Her tax classes are set as standard 20% for the plugin and zero rate for the e-book.
UK consumer sale, plugin priced at £30 including VAT at 20%:
| Item | Amount |
|---|---|
| Net price | £25.00 |
| UK VAT at 20% | £5.00 |
| Customer pays | £30.00 |
UK consumer sale, e-book: because qualifying e-publications are zero-rated, a £10 e-book carries £0.00 VAT and the customer pays £10.00.
Now her EU plugin sales for the quarter, each priced so the net is €20.00 and the customer pays their own country's VAT-inclusive price:
| Customer country | VAT rate | Net | VAT per sale | Sales | OSS VAT due |
|---|---|---|---|---|---|
| Germany | 19% | €20.00 | €3.80 | 200 | €760.00 |
| France | 20% | €20.00 | €4.00 | 150 | €600.00 |
| Sweden | 25% | €20.00 | €5.00 | 50 | €250.00 |
| Total | 400 | €1,610.00 |
Maya charges each EU consumer their home rate, files one OSS return through Ireland, and pays the €1,610.00 over to be distributed to Germany, France and Sweden. Her UK VAT return handles the UK sales separately. The country rates here are the rates her plugin should apply per customer location; she keeps location evidence for each sale to support them.
The lesson: one store, but several different VAT outcomes depending on who buys and where they live, and her WooCommerce tax settings have to produce every one of them correctly.
Can I reclaim VAT on the tech behind my store?
If you are VAT-registered, the VAT on costs you incur for your taxable business is generally recoverable, subject to the normal rules. For a digital-download business the running costs are largely revenue expenses: hosting, plugin and theme subscriptions, payment gateway fees, and ongoing developer maintenance. These are deductible against profit and the VAT is usually reclaimable on your return.
The line to watch is capital versus revenue. A one-off, substantial build of a new store or a bespoke software asset that has lasting value can look more like capital than day-to-day running cost, which affects how it is treated for tax. The split is not always obvious, and getting it wrong distorts both your VAT recovery and your profit. If you are unsure how to treat a big build or a major plugin development cost, this is worth a quick check with an accountant.
Frequently asked questions
Do I charge UK VAT on digital downloads if I'm not VAT-registered?
No. You only charge UK VAT once you are VAT-registered. You must register if your VAT taxable turnover exceeds £90,000 (the threshold since 1 April 2024), and you can register voluntarily below that. Be careful, though: selling digital services to EU consumers can create an EU VAT obligation with no threshold at all, even while you are below the UK threshold.
Does the £135 rule apply to my WooCommerce digital downloads?
No. The £135 rule applies to consignments of goods imported and sold to UK customers, where UK supply VAT replaces import VAT at or below that value. Digital downloads are services, not goods, so there is no consignment and the £135 rule does not apply. Your digital sales are governed by the place-of-supply rules instead.
Why don't I get a platform VAT report like Amazon or eBay sellers?
Because WooCommerce and EDD are self-hosted on your own site, there is no marketplace operator in your transactions. Marketplaces can be treated as the deemed supplier for certain sales and must report seller income to HMRC. A store you host yourself is not a third-party platform reporting on you, so you self-declare and account for all the VAT yourself.
Do I need to register for EU OSS to sell an e-book to one EU customer?
Potentially yes. There is no threshold for cross-border B2C digital services, so even a single sale to an EU consumer can create an obligation. UK businesses can register for the Non-Union OSS in one EU member state to handle this with a single return, or register for VAT in each member state where they have consumers.
How do I know if my customer is a business or a consumer?
Ask for a VAT registration number at checkout. If the customer provides a valid VAT number, treat the sale as business-to-business, where the reverse charge generally applies and you do not charge the VAT. If no VAT number is given, treat it as a business-to-consumer sale and charge VAT based on where the consumer lives.
Are e-books and e-magazines zero-rated in WooCommerce?
Qualifying electronic publications such as e-books, e-newspapers and e-magazines have been zero-rated for UK VAT since 1 May 2020. Audiobooks are excluded and stay standard-rated, as are publications that are more than half advertising, audio or video. In WooCommerce, put qualifying e-publications in a zero-rate tax class and standard products like plugins and software in the 20% class.
Key takeaways
- WooCommerce and EDD are self-hosted, so you are the supplier on every sale: no deemed supplier, no platform report, you self-declare.
- UK digital downloads are mostly standard-rated at 20% for 2025/26, but qualifying e-publications are zero-rated.
- Cross-border B2C digital sales to EU consumers use the consumer's location and have no threshold; the Non-Union OSS lets you file one EU return.
- The £135 rule is for imported goods, not digital services, so it does not apply to your downloads.
- Your VAT is only as accurate as your plugin's tax settings, so configuration and location evidence matter.
Selling digital downloads through WooCommerce or EDD and not sure your VAT setup is right? Zmartly's ecommerce accounting team can review your tax classes, OSS position and bookkeeping, and our VAT and tax advisory service can sort the trickier place-of-supply and capital-versus-revenue questions. Book a call to get your store's VAT on solid ground.
