UK | Consultation on VAT Split Payments Mechanism

The UK tax authority, HMRC, along with HM Treasury, has published the consultation, “Alternative method of VAT collection – split payment”, on its website as part of the 2018 Spring Statement, to examine the feasibility of how a split payment mechanism could be used to combat online VAT fraud.

If the UK implemented such a mechanism it would likely involve the VAT amount being extracted from the customer’s payment in real time via the online sale system and transmitted directly to HMRC. Currently, countries such as Romania and Italy make use of split payments for specified situations.

The document asks for stakeholder feedback on proposals outlining how the split payment mechanism might operate. In particular, views are sought on the following:

Determining which party is in the best position to carry out the splitting of the VAT from customer payments

According to HMRC, this is most likely to be the merchant acquirer since it holds information identifying both the supplier as being overseas as well as the customer as UK-based.  As a default option, especially if the merchant acquirer is not in the UK, HMRC considers either the payment service provider or card issuer as best placed to extract the VAT amount.

The role of online marketplaces when they are involved in a sale

HMRC believes that when the seller uses an online marketplace, it will be most closely connected with the transaction and likely to hold sufficient data to enable it to indicate the VAT liability of the goods.  Consequently, HMRC take the view that in this scenario the online marketplace may be able to take responsibility for splitting the payment.

The calculation method for split VAT amount required from each transaction

HMRC has put forward three options regarding the amount of split VAT collected:  a standard-rated VAT split, a flat rate scheme or a net effective rate. HMRC’s favourite option is the last one since it combines incentives to comply whilst still being proportionate in the amount of VAT demanded.

Responses must be sent to HMRC by 29th June 2018.  We will provide updates on HMRC’s output and views from the consultation and what it will mean in the future.

If you believe you may be affected by the above or if you have any questions, please do get in touch