HMRC has issued a call for evidence on an alternative method of collecting VAT for online business to consumer sales, in a bid to tackle the growing problem of tax losses on sales via online marketplaces made by businesses based overseas
HMRC says failure to charge VAT, delays in handing over customer payments, and non-payment of taxes withheld, all resulted in an estimated £1bn -1.5bn of VAT not being collected in 2015-2016.
The call for evidence is focused on the technical feasibility of extracting VAT in real time at the point of purchase using payment technology and depositing the tax payment directly with HMRC, a process referred to as ‘split payment’.
It includes a number of examples of international practice, in countries including Ecuador and Argentina, where ‘acquisition companies’ act as intermediaries between the credit and debit card issuing banks and the seller who accepts the cards as payment. Typically VAT is withheld by these acquisition companies and reported to the tax authority.
The call for evidence asks for examples of other jurisdictions of tax amounts being extracted from payments in real time, and whether the technology currently used to deduct fees from a transaction could be adapted to handle tax deductions.
It sets out what HMRC calls ‘agreed design principles’ for the split payment process, which include it being simple for the seller, invisible to the user and likely to reduce fraud significantly. The document also outlines HMRC’s understanding of the current payment cycle, and asks for comment on whether this needs amending.
At present, HMRC believes the payment cycle participant most likely to be able to effect a split would be the merchant acquirer as they are in possession of most of the information available such as: the customer’s card number; the country where the card is issued; the merchant’s name and address; the value of the transaction; and how the money is collected, such as face to face or online.
HMRC concedes that while a split payment process is feasible, ‘there would be a need for evolutionary changes to enable implementation’, and the call for evidence asks for feedback to the likely challenges in developing such an approach.
The deadline for comments is 30 June.
Call for evidence: Alternative method of VAT collection is here.
