Her Majesty Revenue and Customs(HMRC) has put in order a consultation on the proposal to extend the current online marketplace VAT liability(deemed supplier provision) also towards the UK tax-based businesses when the goods that they supply are situated in the UK at the point of purchase.
Based on their latest survey, HMRC predicts that there are tens of thousands of online UK-based vendors making their sales through one or more marketplaces that aren’t compliant with local VAT Rules.
The VAT consultation on extending the deemed supplier provision for online marketplaces is open until August 18, 2026. The HMRC calls all respective stakeholders to express their views on the proposed measure.
UK Deemed Supplier Provision for Online Marketplaces
The UK Government is set to reduce the levels of VAT fraud in the online retail. One of the proposals is set on the readjustment of the deemed supplier provision for online marketplaces. The proposal is to expand the deemed supplier provision for online marketplaces, in a way that the marketplace operator should be accountable for VAT collection, also for B2C online UK sales, where the supplier is a UK-based person. Of course, limiting the accountability only to the sales that are facilitated by its marketplaces.
The HMRC also sees in this measure a great enforcement tool that will reduce VAT fraud for online sales and level the playing field with the local retailers that make their B2C sales through physical stores.
The current rules were introduced in 2021, and they have shown great results in decreasing UK VAT fraud for online sales. The present rules hold online marketplaces accountable for VAT collection on third-party supplies for different types of sales made by overseas vendors to local consumers.
However, the exponential trend of growth of the e-commerce sales, both for B2C and B2b transactions, calls for the readjustment of the tax provision that has been effective in the original state for more than 5 years already.
UK Online Vendors
The survey indicates that a significant portion of UK businesses that are making B2C supplies through online marketplaces aren’t VAT compliant, and it is very challenging to monitor tens of thousands of suppliers via the current legal framework.
The survey indicates that one of the most challenging sectors for proper monitoring of VAT compliance is the takeaway and restaurant sector, where local businesses are making online supplies through different marketplaces to local customers.
The government says its proposals are designed to develop a compliance framework that tackles non-compliance and tax evasion across all sectors that use online marketplaces to sell, and ultimately level the playing field for UK businesses that are compliant and operate between online and high street sales.
The data shows that HMRC is losing hundreds of millions of GBP each year due to the VAT gap in these sectors.
The spectrum of changes for online marketplaces will depend primarily on their current status concerning VAT accountability. If they are already held responsible for VAT collection and remittance on the underlying supplies of goods on behalf of the overseas vendors, the expansion of their liability to also account for VAT on the supplies by locally established persons should be “less” challenging and demanding in comparison to marketplaces that facilitate at the moment “only” supplies of locally established businesses.
Per the current tax framework, locally established businesses are held responsible for VAT management for these supplies.