Online platforms ‘jointly and severally’ liable for UK VAT
New legislation making online marketplaces more accountable for VAT fraud committed by online sellers on their platforms have come into force this week, as part of a package of measures in Finance Act 2018 which the Treasury says are set to raise an additional £1.2bn in tax
16 Mar 2018
The bill received royal assent on 15 March. Among the measures is new legislation making the operators of online marketplaces jointly and severally liable for the unpaid VAT of sellers operating on that marketplace where the seller has not registered for UK VAT and the operator knows, or should have known, about the breach.
If sellers based in the UK or overseas are not paying the correct VAT when selling in the UK, and are not removed from the site following the issue of a notice by HMRC to the marketplace, then HMRC will pursue the marketplaces themselves for any future unpaid tax by those sellers.
Marketplaces must now also make sure sellers using their platforms display a valid VAT number on the site, when they are given one.
Mel Stride, financial secretary to the Treasury, said: ‘Whilst the honest majority pay what they owe, some businesses that sell goods online to UK shoppers are failing to pay the correct amount of VAT.
‘This behaviour unfairly undercuts businesses trading in the UK that play by the rules, abuses the trust of buyers and deprives the government of significant revenue that funds vital public services.’
HMRC has published guidance on the VAT checks online marketplace operators must carry out on sellers. Reasonable due diligence checks on new sellers setting up accounts include that the VAT registration number (VRN) a seller provides or displays is valid; the location of the seller; the location of the goods to be sold; whether the seller has been removed from the online marketplace before; and how quickly the seller is able to fulfil orders from UK consumers.
HMRC says it is up to the operator to confirm the VRN of a seller operating on their marketplace within 10 days of receiving it. Failure to do so could mean they become jointly and severally liable for the seller’s unpaid VAT if the seller is still operating on the online marketplace 60 days after the initial 10 day period has ended.
There are penalties for failing to publish a valid VRN, or for failing to remove a VRN which is found not to be verified.
HMRC warns that where evidence has been available to the operator that shows a seller who has previously not met their VAT responsibilities and has been removed from their marketplace has set up a new account using a new legal entity, HMRC will make them jointly and severally liable for VAT if it is satisfied that they knew, or should have known that the new entity was not going to pay VAT.
HMRC will take into account how many checks have been made on the new legal entity when considering the ‘knew or should have known’ test.
Other measures in Finance Act 2108 include closing loopholes in existing anti-avoidance rules relating to paying UK tax on the funds individuals withdraw from offshore trusts; preventing companies from claiming relief for losses on the disposal of shares which do not reflect losses incurred by the wider group; clamping down on tax relief for intellectual property; and forcing rogue operators of illegal landfill sites to pay tax.
Stride said: ‘The UK’s tax gap is at a record low and one of the lowest in the world but we are not resting on our laurels. Today’s changes show our determination to ensure the tax system remains fair for the honest majority of people and businesses who pay the taxes they owe.’
Report by Pat Sweet