July 10, 2020
Since September 2016 HMRC has started over 2 000 VAT investigations on distance sellers selling via online marketplaces. As from January 2018 HMRC has issued more than 1 300 joint and several liability notices. This notice means that you may be held jointly and severally liable for the net VAT charged on specified goods if HMRC considers that you ‘knew’ or ‘had reasonable grounds to suspect’ that in your supply chain the VAT on the supply of goods would go unpaid. Since then, HMRC has seen an increase in VAT applications by distance sellers from 1 650 applications in 2015 to 27 500 applications per 2016 – 2018 period.
Furthermore in 2018 HMRC has signed an agreement with Amazon and eBay on voluntary disclosure of VAT evasion by distance sellers, giving HMRC access to all distance sellers transaction data. There were rumors that after analyzing those transactions HMRC even started to seize stock, belonging to non-compliant distance sellers, from Amazon. However, HMRC declined to comment tax affairs of particular companies, but at the same time confirmed that it does seize stock if there is evidence that it was imported without paying customs duties and import VAT.
Despite aggressive measures to tackle VAT fraud committed by distance sellers, it is estimated that UK is losing 1.5 billion GBP in VAT revenue each year. Therefore, as from January 2021, HMRC will start treating online marketplaces such as Amazon and eBay as vendors instead of as facilitators, making them accountable for VAT collection on UK sales by distance sellers.
This means that Amazon and eBay and also smaller marketplaces will have to ensure that distance sellers, making UK sales, are registered in UK as VAT payers, are charging VAT on all UK sales and are submitting correct VAT returns to HMRC. In case of non-compliance with these requirements marketplaces will be directly liable for any due and unpaid VAT on all UK sales by distance sellers.
This would definitely result in increased marketplace’s charges as they will pass VAT compliance costs to vendors and could also result in decrease of number of smaller marketplaces that will lack the resources to stay compliant with new VAT rules. VAT compliance costs will also increase for distance sellers as they will have to prove to marketplaces that they are fully compliant with applicable VAT rules and, therefore, marketplaces will not be held liable for any unpaid VAT by such distance sellers.