As the final online shopping parcels hit the doormat in time for Christmas, HMRC says it has registered a ten-fold increase in the number of internet retailers registering for VAT since gaining new powers in regards to overseas sellers
Under measures introduced in March 2016, online marketplaces are held liable for unpaid VAT by overseas retailers. Since then, HMRC reports 7,185 online retailers have come forward to register for VAT, compared with just 695 who registered in 2015.
HMRC says overseas sellers used to gain an unfair advantage on UK based retailers by not charging VAT on goods sold through online marketplaces, and estimated this cost the Exchequer around £1bn each year.
With a growing number of overseas sellers dominating sales of popular gifts on online marketplaces, last Christmas alone it was estimated the Exchequer lost tens of millions of pounds to VAT evasion.
Under the rules which came into force in September, HMRC can now force overseas retailers to appoint a UK-based VAT representative or provide a financial guarantee. If the overseas retailer fails to comply with HMRC’s directions, then the online marketplace they use to sell their goods could be held liable.
On top of this, as these goods are often stored in UK warehouses for distributions to UK customers, warehouses will have to join a due diligence scheme by 2018 or face penalties.
Jane Ellison, financial secretary to the Treasury, said: ‘Having worked in the retail sector, I know what an important time of year this is for retailers and the millions of workers across the country who work in the sector. These new powers will mean that everyone has to play by the same rules and pay the right tax.’
Where the overseas trader does not comply with HMRC’s directions HMRC will put the online marketplace on notice. It may be held liable for the VAT in respect of the overseas trader’s future sales through its marketplace. The notice will also set out a period of time (normally 30 days) during which the online marketplace can take steps so it does not become liable, either by securing the VAT from the overseas business or by removing it from its marketplace. After this period of time, the online marketplace will be held liable if no such action has been taken.
The new powers along with the fulfilment house due diligence scheme in 2018 are forecast to raise £875m in total for the Exchequer by 2021.
