Globally, governments and tax authorities are tightening the tax rules for online marketplaces and online platforms providing accommodation, transportation, and other services.
United Kingdom is no different, where online marketplaces are now being encouraged to demonstrate their support for value-added tax enforcement efforts by signing a new agreement with HM Revenue and Customs.
Published on 25 April 2018, the agreement sets out a list of commitments between HMRC and any online marketplace that chooses to sign the pact. It concerns the VAT due on supplies by third-party businesses (whether UK based or overseas) operating on their marketplace and is intended to build upon HMRC's recent work to tackle non-compliance by sellers using online marketplaces to make supplies to UK consumers without charging VAT.
By entering into the agreement, signatories agree to provide data; educate sellers on their VAT obligations; and respond to evidence of non-compliance.Related: Rise Of The Netflix Tax – VAT On Digital Supplies
Provision of data
Under the agreement, a marketplace commits to providing HMRC with data about the businesses operating through their platform to sell to UK consumers to assist the tax agency to tackle online VAT fraud and error.
The data provided must be sufficient to allow HMRC to:
- identify individual business sellers;
- calculate the value and volume of UK sales of individual businesses over a prescribed period; and
- contact the individual business directly.
Education For Sellers
The agreement commits online marketplaces to ensuring that sellers have access to information about their VAT obligations in the UK. This includes for UK, EU, and non-EU sellers. Online marketplaces may choose to provide guidance or assistance themselves or to direct sellers to HMRC’s own guidance.
Responding To Evidence Of Non-Compliance
By signing the agreement, online marketplaces agree to respond swiftly when notified by HMRC that sellers are using their marketplace in breach of UK VAT legislation obligations. In addition, each online marketplace must ensure they have systems to take appropriate action whenever presented with evidence of potential non-compliance with UK VAT registration obligations.
The agreement provides that online marketplaces must inform HMRC when it has restricted a seller from selling in the UK or removed a seller from its marketplace for non-compliance with UK VAT obligations within 30 days of that action.
Requests for data to online marketplaces by HMRC will be made on a case-by-case, and on a risk, basis.
In all cases where it receives information about sellers from online marketplaces, HMRC will respect the ‘commercial-in-confidence’ status of the information.
HMRC will ensure that this agreement is made available to all online marketplaces and will publish the list of all online marketplaces that sign up to this agreement. However, signatories that fail to comply with the terms of the agreement will be removed from the list.
As can be seen from the above, the agreement places a fairly stringent set of responsibilities on online marketplaces to ensure sellers comply with VAT, especially with regards to seller data, which could be difficult for them to obtain in some cases.
So, what’s in this for the marketplaces themselves? HMRC doesn’t say explicitly, but the inference is that businesses might want to protect their reputation by having their name on the list. What’s more, signing the agreement might reduce the risk of costly VAT inspections.