Online VAT crackdown highlights
challenges of the global market place
THE Chancellor's announcement of a
crackdown on online VAT fraud highlights the challenges of raising revenue in a
globalised economy. In the budget, Philip Hammond confirmed that the Government
would take further steps to clamp down on businesses who sell through online
marketplaces but fail to pay VAT. Such activity reportedly costs the UK an
estimated ₤1.2 billion in lost revenues.
Under the proposals, HMRC's powers will be extended to hold, both sellers and
the online marketplaces on which they trade liable for unpaid VAT, 'joint
and several liability'. This will also be extended to include UK (as well as
Since 2016, the Government has taken a number of steps to increase VAT
compliance, including making online marketplaces potentially liable for VAT due
by their non-UK sellers. From April 2018, HMRC will start to accept
registrations for the Fulfilment House Due Diligence Scheme, which will oblige
fulfilment businesses in the UK to register with HMRC, keep certain records and
carry out robust due diligence checks on their overseas customers.
But the Institute also warned of the challenges associated with enforcing the
new rules, such as understanding whether their sellers are required to register
for VAT, and the level of 'due diligence' that the online marketplace needs to
undertake to protect themselves from a liability.
Commenting, Alan McLintock, Chair of the CIOT's Indirect Taxes Sub Committee,
said:- "The rise of online shopping has changed the way we shop but it has
done so at the expense of the Tax system. Enforcement of the VAT rules is
naturally more difficult with overseas online sellers.
We have already seen a ten-fold increase in the number of VAT registrations by
non UK businesses before today. This is a good example of the effectiveness of
the steps already taken by HMRC to ensure compliance.
The measures are welcome step, building on the good progress already made by
HMRC to tackle the issue of online VAT avoidance. It will be welcomed by
retailers who for years have paid the appropriate amount of VAT due, but who have
had to compete against those who have not.
However, the rules around VAT registration are not necessarily straight forward,
and online marketplaces will need to satisfy themselves that they have taken
sufficient reasonable steps to protect themselves of assertions by HMRC that
they "knew or should have known" that a seller should be VAT registered in the