The government and the UK retail sector have long been concerned at the uneven playing field and loss of an estimated £1bn to £1.5bn of VAT revenues caused by those overseas online retail businesses which trade with UK consumers yet flout their obligation to account for UK VAT.
Following intense lobbying, this week’s Budget therefore announced provisions aimed at protecting VAT revenues and leveling the playing field for UK retailers.
The measures being introduced will mean that overseas businesses which HMRC believe to be non-compliant in declaring UK VAT will be required to appoint a UK tax representative; and if that doesn’t capture the VAT due but remaining unpaid, online platforms such as Amazon and eBay face an implicit threat that the platforms themselves could be held jointly and severally liable to any undeclared UK VAT of the sellers.
The clear message is that HMRC is serious about tackling this problem, and while at face value such measures seem entirely sensible to protect UK revenues, it does present huge difficulties for sales platforms and the online marketplaces. The measures being introduced will therefore require online platforms to monitor the trade patterns and income levels of all traders, and understand the UK VAT treatment of the goods being sold on their sites. But, sellers often trade on a number of marketplaces and the individual sales platforms will not ordinarily be aware of such multiple sales activities via their competitors. Could this result in HMRC penalising one marketplace but not another?
Whilst the policy intentions are laudable, many questions remain over how HMRC will make this work in practice without burdening otherwise innocent platform and marketplace businesses with an unexpected and unwelcome UK VAT liability. If the measures are aimed at bulk imports being held in UK fulfillment houses, someone, carrier or agent, is already taking care of UK import regulations and would probably be better placed to identify overseas sellers.
If the measures are aimed at low value goods typically sent by post on an individual basis, the European Commission is already looking at solutions to clamp down on non-EU imports by removing ‘low value consignment relief’, making it much easier to police the VAT status of traders importing goods into Europe.
For more information please contact David Wilson, or your usual RSM contact.