George Bull

Written by: David Wilson

George Bull

Senior Tax Partner

It takes two to tackle online VAT fraud

The success of the new measures to tackle online VAT fraud set out in the Budget will be as much dependent upon the actions of HMRC as it will on the cooperation of online marketplaces.

The key headline is of course that online marketplaces will be held jointly and severally liable for VAT unpaid by sellers operating via their platforms. Behind the headline is the detail and how it will work in practice. As ever in VAT, the devil is in the detail.

What would, at first glance, be the easiest measure for marketplaces to adopt, is the displaying of a seller’s valid VAT registration number; assuming the marketplace is given one. Under this measure, the marketplace is expected to check the validity of the number given. But to do so, HMRC needs to ensure that the VIES database is up to date, and identifies all UK VAT-registered business, particularly where the seller may be an individual member of a VAT group and only the VAT group’s representative is identified on the database.

The new measures also address UK sellers using an online marketplace. Here it is envisaged that the first contact will be between HMRC and the non-compliant seller. Where HMRC is unable to secure the VAT compliance of that UK seller, the marketplace will have 30 days to remove the seller from its platform if it wishes to avoid a joint and several liability notice.

According to a recent study, there are now over 700,000 small UK business owners selling via online marketplaces. If even 10 per cent of these businesses are identified by HMRC as not being VAT-compliant, online marketplaces face the onerous challenge of contacting and removing these sellers from their platforms within a tight timeframe.

Perhaps the most challenging aspect for online marketplaces relates to overseas sellers. Under the new measures, an online marketplace will face a joint and several liability notice if it ‘knew, or should have known’ that the non-UK business should be registered for VAT in the UK. The marketplace will have 60 days to contact or remove the non-compliant seller from its platform if it wishes to avoid a joint and several liability notice. However, without some assistance from HMRC, marketplaces may struggle to know what stock is held by the seller in the UK; the value of a seller’s sales in the UK; or even if the seller has been compliant in filing VAT returns; particularly if the seller is using several different platforms.

Collaboration between the online marketplaces and HMRC will be crucial to the success of tackling online VAT fraud, as any enforcement is intertwined between both organisations to share key evidence to support any fraudulent activity.

One final thought; the Chancellor identified that ‘online VAT fraud costs the taxpayer £1.2bn per year’; however, the Budget papers show that the new measures will only generate £145m, in total, by 2023, which suggests that, although marketplaces are themselves already doing a lot to clampdown on online VAT fraud, more needs to be done.

For more information, please comment below or get in touch with David Wilson.

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