Some meat retailers have introduced a trade embargo on fat lambs sold through livestock markets on the grounds that welfare standards associated with live auction markets are said to be worse than standards associated with direct sale to abattoirs. The current study examined the handling difficulties and welfare standards at 24 UK livestock markets. Comparisons were made according to class of animal (store, fat, breeding animals, etc.) and throughput of the market: <100 livestock units (LU) per week, 100–300 LU per week and >300 LU per week. Handling problems examined included refusal to move, balking, slips, falls, impacts, isolation leading to apparent distress, confusion while loading onto vehicles and inappropriate handling such as wool pulling. The overall prevalence of each handling problem was low (usually <0·05 of the sheep). The most common difficulties were impacts, slips and falls when grading fat lambs, and confusion or refusal to load onto the vehicles after the sale in ewes. Store lambs were generally easier to handle than fat lambs. They were less prone to refusing to move, balking, impacts, slips and falls. In fat lambs, slips and falls during grading were more common at small markets, while at larger markets there were more impacts, slips and falls during selling. Confusion during loading onto vehicles after the sale was more common in breeding ewes and rams, and at small markets. Projections in the corridors that were considered to be potential bruising or impact points were found in 0·33 of the markets and 0·71 did not have a way of ensuring that legs could not get trapped between gates and gateposts if sheep attempted to jump out of a holding pen. In most other respects the prevalence of problems with the facilities and during handling was low and it was concluded that a trade embargo on selling fat lambs in markets might not be justified.