A leaked document, as reported by the Financial Times, shows that from the start of next year HMRC will abandon the status of online marketplaces as facilitators of UK sales of overseas goods and treat them as vendors, making them responsible for the collection and submission of VAT.
The plans signal that the UK will step up its fight against VAT fraud, worth an estimated £1.5 billion ($1.86 billion) in 2016-17, and that the tax administration has accepted that previous attempts to combat VAT fraud by overseas retailers on online marketplaces have failed.
HMRC had previously pushed for an industry-wide agreement with marketplaces such as Amazon and eBay to create a disclosure scheme for VAT evasion.
A spokesperson from HMRC said: "We want to ensure we don't lose out on tax due to non-compliance overseas. Having the right system in place will ensure equal treatment for all businesses, help maintain the flow of goods and ensure our vital public services, like the NHS, do not miss out."
HMRC also noted that it is informally consulting with its stakeholders about the VAT treatment of goods arriving from overseas sold to UK consumers and any changes to tax policy would have to be agreed by Treasury ministers.
Physical retailers in the UK have long complained that third-party sellers trading through online platforms fail to charge VAT on their sales, giving them a competitive advantage. These more stringent requirements, however, do not make concessions for smaller businesses, which do not enjoy the same capacity for compliance.
“The current system can be a nightmare for legitimate businesses to navigate and is simply too easy for fraudulent sellers to abuse. Making marketplaces like Amazon and eBay responsible for collecting VAT will make the system much simpler and more effective,” said George Turner, director of tax think-tank TaxWatch.
However, while the system will seek to enforce a clampdown on fraud, the marketplaces that will now be responsible for collection of VAT will be affected by the increased administrative burden, which will likely result in increased costs or redirection of internal resources.
The document also proposed the removal of the VAT exemption for goods worth less than £15, potentially expanding the scope of the burden on marketplaces. The stricter requirements will likely be passed onto consumers in higher prices and could also hamper the speed of economic recovery following the pandemic.
Furthermore, the short timeframe until the effective date at the start of 2021 will provide significant obstacles for both HMRC and taxpayers in implementing and complying, while they both navigate the COVID-19 crisis and Brexit-related changes.
Meanwhile, the European Commission has proposed to postpone its EU-wide VAT e-commerce package by six months, delaying the effective date to July 1 2021, while Germany made marketplaces liable for unpaid VAT in 2019.
While the clampdown on fraud is justified and alludes to tax authority behaviour post-crisis, the timing of this move is precarious. Online marketplaces in the UK will struggle to juggle this new requirement in ongoing circumstances. It’s too much, too soon, even for HMRC.
