How We Recovered £2,000 in Unclaimed VAT for a TikTok Shop Seller

The "Hidden Leak" that 90% of High-Volume Social Commerce Brands are Missing.

If you are scaling a TikTok Shop in the UK, you already know that while the sales volume is unparalleled, the financial backend is a "black box."

We recently onboarded a new client—a thriving TikTok Shop seller with a healthy six-figure turnover. On the surface, their growth was enviable. But a deep dive into their Digital Audit Trail revealed a significant financial leak. They weren't losing money to ad spend or logistics; they were overpaying HMRC.

Specifically, they had missed £2,000 in unclaimed Input VAT simply because TikTok’s financial ecosystem requires a level of forensic accounting that standard bank-feed integrations cannot handle.

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The "Net Payout" Trap: Why Your Bank Feed is Lying to You

The biggest mistake TikTok sellers make in 2025 is relying on "Net Payout" reconciliation.

When TikTok sends money to your bank account, it is the net amount. They have already deducted:

• Platform Commission Fees
• Transaction Fees
• Shipping Fee Adjustments
• Affiliate Commissions (and the associated VAT)

If your accountant simply records the money hitting your bank as your "Sales" figure, you are making two massive errors:

1. Under-reporting Gross Sales: You are reporting the net, which is a breach of HMRC’s "Gross Accounting" rules.
2. Missing Input Tax: TikTok charges 20% VAT on most of their fees. If you don't record the fee as an expense, you cannot reclaim that VAT. This is effectively paying tax on money you never actually touched.

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The 2025 Challenge: Why Software Isn't a "Silver Bullet"

By late 2025, tools like Link My Books and A2X have improved their TikTok connectors, but the "Expertise Gap" remains.

Most automated tools struggle with TikTok Subsidies (vouchers) and the "Timing Difference" between a customer's order and the official VAT invoice issued by TikTok Information Technologies UK Ltd.

Without a manual check against the TikTok Finance Invoice Centre, you are likely missing the legal evidence required to claim back Input Tax during an HMRC inspection.

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Our Audit Process: 3 Steps to Recovering Overpaid Tax

To recover the £2,000, we moved beyond the dashboard and into the raw data.

1. Reconciling Settlement Files vs. Tax Invoices

We didn't just look at the Settlement Reports; we pulled the VAT Invoices from the TikTok Seller Centre > Finance > Invoices tab. The settlement report tells you the movement of cash; the invoice provides the legal proof of VAT paid.

2. Isolating VAT-able "Service Fees"

We identified three specific areas where our client was paying VAT but not reclaiming it:

• Logistics Fees: VAT on shipping labels purchased through the platform.
• Technical Service Fees: The 20% VAT on TikTok's commission.
• Ad Credits: VAT on platform-side marketing spend.

3. The Comparison

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The Strategy: Fixing the Error via HMRC’s 2025 Digital Portal

Once the £2,000 leak was identified, we took action. Since the error was under the current HMRC threshold (the greater of £10,000 or 1% of turnover), we didn't need a formal disclosure (formerly VAT652).

Instead, we adjusted the client’s current VAT return through our MTD-compliant software, ensuring a perfect digital link was maintained. The result? A £2,000 reduction in their next VAT bill—effectively an immediate cash injection into their business.

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Are You Overpaying? 3 Signs of a "Tax Leak"

1. The Flat Rate Scheme (FRS) Trap: If you are on the VAT Flat Rate Scheme, you generally cannot reclaim VAT on TikTok fees. In 2025, with platform fees rising, many sellers are losing thousands by staying on the FRS when they should be on Standard Accounting.
2. Missing Invoices: If your accountant has never asked for your "TikTok Fee Invoices" and only uses your bank statements, you are almost certainly overpaying.
3. Subsidies Confusion: If TikTok gives your customer a £10 voucher, do you know how to account for that VAT? If you treat it as a "discount" rather than "third-party consideration," you are at risk of an HMRC penalty.

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The Bottom Line: Compliance is a Growth Strategy

In 2025, the ecommerce margins are tighter than ever. Reclaiming £2,000 in VAT is the equivalent of generating an extra £10,000 in sales at a 20% margin.

Proper VAT management isn't just about avoiding fines; it’s about Profit Recovery. It’s also vital for your "Exit Value." If you ever plan to sell your brand, a buyer's due diligence will shred messy TikTok bookkeeping. By fixing this now, our client didn't just save cash—they de-risked their entire business.

Is your money sitting in HMRC’s bank account instead of yours? 

Author

Sam Hoye is the Co-Founder and Managing Director of Social Commerce Accountants, a specialist firm dedicated to supporting e-commerce brands and creators. With over 15 years of experience in accounting and business strategy, he focuses on helping online sellers navigate complex platforms like TikTok Shop and Amazon FBA. Sam launched the firm to provide transparent, jargon-free financial guidance tailored specifically for the fast-paced digital economy. His mission is to help founders stay compliant and profitable through modern, tech-integrated accounting solutions.

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