Online marketplaces such as Amazon and eBay could find themselves held liable for VAT fraud committed by non-compliant sellers in some circumstances, as a result of new measures outlined in the Budget designed to crack down on VAT evasion by overseas online sellers, which the Treasury estimates is costing between £1bn and £1.5bn a year in lost tax revenues
Under the plans announced at the Budget, HMRC will be able to require non-compliant overseas traders from outside the EU to appoint a tax representative in the UK, and will be able to inform online marketplaces of the traders who have not complied.
If traders continue to evade VAT and no action is taken to prevent the fraud, then online marketplaces can be made liable for the VAT.
Subject to the consultation, the intention is to legislate in Finance Bill 2017 to provide HMRC with strengthened powers for directing the appointment of a VAT representative and greater flexibility in respect of seeking a security.
The new legislation will enable HMRC to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas business from outside the EU that sells goods in the UK via the online marketplace’s website.
The government will also introduce a due diligence scheme for the fulfilment houses where overseas traders store their goods in the UK, which it says will make it harder for VAT evading firms to trade. Fulfilment houses will have an obligation to register and maintain accurate records once online registration opens in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules.
The government has published a consultation on the ‘fit and proper’ standards that fulfilment houses will need to meet in order to operate. There will also be a consultation in spring 2016 on a new penalty for participating in VAT fraud.
Robert Facer, VAT director at Menzies, said: 'Finally, we’ve seen justice served. Until now, UK e-tailers have been in competition with foreign firms, some of whom store and sell products on British soil without paying VAT. This levels the playing field and presents a huge opportunity for SMEs to grow and increase marketshare.
'Naturally, the policy’s effectiveness is dependent on the outcome of a consultation which will run until 30 June 2016, which will be an ideal time to clarify the administrative role of fulfilment houses in checking the status of overseas sellers.
‘There may also be questions around the extent to which these businesses are responsible for helping to prevent VAT evasion, so it is vital that this process is properly managed and clear guidelines produced.'
In a statement, eBay said it ‘welcomed rules that ensure a fair marketplace’, but said it already took prompt action when alerted by HMRC to problem sellers not complying with VAT rules.
Amazon said: ‘We are currently reviewing the government’s proposals, and we will naturally comply with any legislation’.
Treasury estimates suggest that the new measures will bring in a total of £875m in additional VAT payments by the end of this parliament, rising from an additional £65m in 2017/18, £130m in 2018/19, £315m in 2019/20 to £365m in 2020/2021.
Details of the proposals on several liability for online marketplaces are here:
The consultation closes on 30 June, and HMRC claims it will have a focus on minimising administrative costs for business.
The HMRC consultation on a due diligence scheme for fulfilment house is available here.
