13 06 2018

Just Three Signatories For HMRC's Digital Marketplace VAT Pact

The UK tax agency, HM Revenue and Customs, has disclosed that just three online marketplaces have so far signed up to its voluntary agreement on supporting VAT compliance: Amazon, eBay, and Fruugo.

HMRC on April 25, 2018, released an agreement that online marketplaces can enter into to demonstrate their support for the proper collection of value-added tax.

The agreement document sets out a list of commitments between HMRC and any online marketplace that chooses to sign the pact. It concerns the value-added tax due on supplies by third-party businesses (whether UK based or overseas) operating on their marketplace.

By entering into the agreement, and therefore having their name listed as a marketplace that has agreed to cooperate with HMRC on VAT enforcement, a marketplace must agree to provide data; educate sellers on their VAT obligations; and respond to any evidence of non-compliance.

On the provision of data, the agreement sets out that, by signing up to the agreement, the marketplace will commit to providing HMRC with data about the businesses operating through their marketplace to sell to UK consumers, both in bulk form and on an ad hoc basis, to assist the tax agency to tackle online VAT fraud and error.

HMRC said: "This provision of data will be on request from HMRC and should be provided either voluntarily or in response to the issuing of a legal notice. HMRC recognizes that online marketplaces operate different business models in various jurisdictions and may hold varying types of data and/or require different approaches to the provision of data. By signing up to this agreement, each online marketplace agrees to find a suitable and legally compliant mechanism for providing HMRC with data on a timely basis via one of the above routes."

The agency said, 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.
In addition, the marketplace will need to commit to educating sellers. HMRC said, having signed the agreement, "online marketplaces agree to ensure that sellers have access to information about sellers' VAT obligations in the UK, including for UK and EU sellers as well as non-EU sellers. Online marketplaces may choose to provide guidance or assistance themselves or to direct sellers to other information, including HMRC's guidance information on GOV.UK."

Last, by signing the agreement, online marketplaces will agree to respond expeditiously 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. HMRC listed the following examples:

marketplaces should include a request for the VAT registration number from the relevant business within the account opening process;
where evidence of potential non-compliance with registration requirements is presented, the marketplace must contact the seller directly to clarify the position within 30 days; and
where the concern about non-compliance with UK VAT registration obligation persists, the marketplace should implement appropriate sanctions up to and including restricting the seller from selling on the UK marketplace or removing it.
Finally, the agreement provides that online marketplaces must inform HMRC when it has restricted a seller from selling on the UK marketplace or removed a particular seller from its marketplace for non-compliance with UK VAT legislation obligations within 30 days of that action.

HMRC said it acknowledges that the 30-day clarification period mentioned is separate from the statutory periods set out in Sections 77BA and 77E of the VAT Act 1994, confirming these carry precedence.

The new voluntary agreement is intended to build upon HMRC's recent work to tackle non-compliance by sellers using online marketplaces to make supplies to UK consumers. Recently the agency secured new powers to enable the agency to hold an online marketplace jointly and severally liable for VAT owed by an overseas seller selling goods in the UK through that marketplace and also the power to direct some non-established taxable persons (NETPs) to appoint a VAT representative who is based in the UK and provide that they should be a "fit and proper" person.