In the age of the digital economy there has been a large increase in online shopping in the UK in recent years.
Many of the goods sold to UK consumers are bought from overseas sellers using online marketplaces.
To cope with demand and ensure speedier deliveries, many of these overseas sellers are now storing their goods in UK warehouses, also known as fulfilment houses. Under existing VAT legislation, when the goods are in the UK at point of sale, this creates a liability for the overseas seller to register for and charge UK VAT on the sale. This is regardless of the level of sales, as a non-established seller doesn’t have entitlement to the VAT thresholds enjoyed by UK based sellers.
Unfortunately, whilst there are many overseas sellers who are compliant, HMRC estimate that there was a VAT loss of £1-£1.5billion in 2015-16, just from non-compliant overseas businesses selling goods to UK consumers.
This has therefore led to the government providing HMRC more powers to tackle this issue, as first announced in Budget 2016. As of September 2016, HMRC can now direct overseas businesses to appoint a tax representative in the UK and make online marketplaces jointly and severally liable for the VAT of the overseas business. In 2018, HMRC will also introduce a Fulfilment House Due Diligence Scheme, aimed at ensuring fulfilment houses carry out checks on their overseas clients or face penalties.
Following the Spring 2017 budget, HMRC have released a “Call for evidence” on alternative methods of collecting VAT for online business.
One of the methods being considered is known as the ‘Split Payment model’. This would involve the use of technology that extracts the VAT from payments made by customers and deposits it directly with the tax authority in real time.
Similar payment technology is already being used in some countries such as Argentina, Ecuador and the Dominican Republic. Therefore, HMRC are gathering evidence on how this concept may work in practice. They have provided some ‘design principles’ for comment on and specifically want to hear from organisations that play a part in the payment process.
Whilst the deadline for comments is 30th June 2017, implementation of this could yet be some way off. However, with tackling tax avoidance being high on HMRC’s agenda and the move into Making Tax Digital destined for 2019, we can safely assume that they will be keen to implement a concept to clamp down on these overseas sellers and increase the UK’s VAT take for the Treasury.