UK | HMRC Launches New Approach in Fight Against Online VAT Fraud

On 25th April 2018, the UK tax authority, HMRC, published an agreement it has reached with online marketplaces in the battle against VAT fraud on their platforms. The agreement was made on a recommendation by the Public Accounts Committee in the 2017 Autumn Budget, following HM Treasury’s lead that online marketplaces should “play a wider role in ensuring their users are compliant with the tax rules”.

Marketplaces who choose to sign up to the agreement and succeed in fulfilling their obligations will be included in HMRC’s public listing of participants. Signatories, which are expected to include Amazon and eBay, commit to take responsibility for the following:

• Provision of Data

Marketplaces will provide HMRC with the data of their traders selling to UK consumers, both in bulk and on an individual basis. At the very least, the data provided must allow HMRC to identify and directly contact individual sellers as well as determine the amount of their UK sales.

• Education for Sellers

Marketplaces will make sure that both resident and foreign sellers are provided with information and guidance materials on their VAT obligations in the UK.

• Rapid Action for Non-compliance

Marketplaces must respond swiftly on notification by HMRC of sellers’ breaching UK VAT law. Moreover, they must keep records of sellers’ VAT registration numbers and contact the seller within 30 days if they have failed to correctly register for UK VAT. In cases where non-compliance with the registration rules persist, marketplaces can take steps such as “blocking” the seller from trading on its UK platform. HMRC must be alerted within 30 days of the marketplace taking such an action.

This move complements HMRC’s “world-leading powers” introduced under the Finance Act 2018. As of 15th March of this year, under extended legislative powers, online marketplaces may be held jointly and severally liable for:

• VAT owed by UK-based online traders as well as foreign sellers (to whom these rules were previously restricted) if no action is taken to remove the seller from the platform, after notification by HMRC of the VAT fraud perpetrated.

• VAT owed by foreign online traders, if they “knew or should have known” that the foreign trader should have been registered for UK VAT, when they were not.

Moreover, marketplaces are required to check that sellers using their platforms display a valid VAT number when they are provided with one.

If you are affected by the above legislative changes or if you have any questions, please do get in touch.