UK: Collecting VAT from foreign online sellers

UK: Collecting VAT from foreign online sellers

New authority being granted to HM Revenue & Customs (HMRC) is intended to protect the UK market from online competition from foreign traders that make supplies of goods in the UK to consumers, and then fail to comply with the requirement to register for UK value added tax (VAT).

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The new authority will be introduced, effective from the date of Royal Assent of Finance Bill 2016, to assist HMRC in collecting currently unpaid VAT (estimated to be more than £1 billion in 2015/2016). 

Greater VAT enforcement, collection

Under a policy paper and HMRC guidance (published this week on the day of the 2016 budget), HMRC’s enforcement and collection authority will be strengthened. 

  • HMRC will have enhanced authority to require the appointment of a UK VAT representative that will be jointly and severally liable for the UK VAT on these supplies. 
  • HMRC will have greater flexibility to demand security for payment of the VAT.
  • New legislation will allow HMRC to hold online marketplaces (through which the UK sales take place) jointly and severally liable for the VAT—no matter the location where the marketplace operates. 

The applciation of these new authorities will not be automatic, and it is intended that they would be used on a targeted basis. The foreign business will be pursued first before any action is taken against the marketplace. If, however, a liability notice is issued to the marketplace, it will have a period of time (30 days is mentioned) in which to take remedial action and to avoid a VAT assessment. This remedial action could ultimately involve removing the business from the marketplace. This would save the marketplace from a VAT bill owed by an unconnected party, but could affect its income levels. 

KPMG observation

It is difficult to enforce VAT compliance against a business with no UK presence. These announced enhancments to HMRC’s authority attempt to address the challenge. Still, the ability to collect VAT from the marketplace, even if used rarely and as method of a last resort, could be viewed as a somewhat radical approach.

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