Online marketplaces to sign agreement tackling VAT fraud

HMRC wants all online marketplaces operating in the UK to sign an agreement to ensure their sellers understand the tax rules and to help tackle online VAT fraud and errors taking place on their platforms, with estimates suggesting a tax loss of between £1bn and £1.5bn in 2016 to 2017

The agreement asks online marketplaces to commit to educating online sellers from the UK and abroad about their VAT obligations in the UK either via their own help and support or by directing them to HMRC’s guidance.

Marketplaces are asked to agree to respond swiftly when notified by HMRC that sellers are not playing by the VAT rules, and to set up a system to take appropriate action. They are also required to find a suitable and lawful way to provide HMRC with information about their sellers, when requested.

HMRC says it may ask for information in bulk form and on an individual business basis, either voluntarily or via a legal notice. This could be a one off request or require provision of a regulator flow of data over an agreed time period.

At a minimum the data provided will 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 (eg, one year); and contact the individual business directly.

HMRC says it will publish the list of all online marketplaces that sign up to this agreement. If an online marketplace that signs the agreement fails to meet the commitments, HMRC will remove them from the list.

Mel Stride, financial secretary to the Treasury, said: ‘The growth of online marketplaces has helped many businesses to sell more products across the UK and has contributed greatly to the economy.

‘However, there is a small minority of sellers not paying their fair share of tax, and we’re committed to working with marketplaces on multiple levels to tackle tax evasion.’

The government has already introduced legislation using the joint and several liability (JSL) rules, which hold online marketplaces accountable for VAT fraud committed by sellers on their platforms.

These were first introduced in September 2016 and were strengthened further in March 2018.

Jon Thompson, HMRC’s chief executive, said: ‘The agreement goes even further to tackle this issue, with online marketplaces committing to helping their sellers understand their tax responsibilities and ensuring we have the information we need to take action against those who do not play by the rules.’

HMRC has opened about 2,100 investigations into non-compliant overseas businesses selling via online marketplaces since the JSL measures were first introduced in September 2016. This resulted in it issuing around 1,300 JSL notices to online marketplaces by 31 January 2018.

The tax authority says there is ‘considerable evidence’ that the measures have been effective in tackling online VAT fraud and error. There have been about 27,550 applications to register for VAT from overseas online retail businesses since the measures were announced in March 2016, compared with about 1,650 for 2015.

Tackling online VAT fraud and error - the role of online marketplaces in co-operating with HMRC (The agreement) is here.

Report by Pat Sweet

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