28 June 2021

VAT and Online Selling Platforms

HMRC has introduced a number of new rules around VAT and one of these relates to goods being sold to UK customers from overseas via online marketplaces. Read our latest article below to ensure you are up to date with the latest changes...

Who is affected and what is changing? 

With effect from 11pm on 31st December 2020, goods with a value of £135 or less which are outside the UK and sold to a customer in England, Scotland or Wales through an online marketplace are now subject to UK VAT at the point of sale.

Any goods outside the UK and EU and sold to a customer in Northern Ireland through an online marketplace will be subject to import VAT. The limit of £135 applies to the total value of the consignment which is imported and not the value of individual items.

The online marketplace will be liable for the VAT unless the sale is from Northern Ireland to a customer who is also in Northern Ireland, when the seller continues to be liable for the VAT. The new rules also place the liability for VAT with online marketplaces where goods that are in the UK at the point of sale are sold by an overseas business.

This VAT liability applies regardless as to the value of the goods. The rules will not apply to consignments of excise goods, non-commercial items such as gifts or consignments of goods from Guernsey and Jersey, provided that VAT is collected and paid through the Import VAT Accounting Scheme.

HMRC defines an online marketplace as a website or app which businesses can use to handle the sale of goods to customers. To be considered an online marketplace, the platform must also meet all the following conditions:

  • It sets the terms and conditions as to how goods will be supplied to the customer.
  • It is involved in authorising and/or facilitating customers' payments in any way.
  • It is involved in the ordering and/or the delivery of the goods.

In 2019/20, the UK VAT gap was estimated to be £11.7bn and as concern grows regarding the increasing levels of fraud in online marketplaces, the new rules have been introduced in an attempt to curb VAT fraud and tax evasion, by shifting liability to the platforms themselves. In 2015-16, HMRC estimated that it lost £1bn to £1.5bn in tax revenue due to VAT evasion by overseas businesses selling goods through online platforms.

Fraud in e-commerce can include failing to provide a VAT number which is valid, forging invoices or undervaluing consignments. More sophisticated fraud, such as cloning another company's details, also takes place. In 2018 Amazon, ASOS, eBay, Etsy, Flubit, Fruugo.com and Wolf & Badger, signed an agreement with HMRC to provide data about businesses operating through their marketplaces to promote VAT compliance.

As a result of this agreement and the data it received, HMRC was able to red-flag 4,600 sellers in 2019 which highlighted the scale of the problem and was only the beginning in HMRC's fight against fraud.

The new rules introduced from December 2020 place the onus for determining who is liable for VAT and, to account for it in some circumstances, on the online marketplaces. The new legislation offers some protection; the online marketplace will not be liable for more VAT than the amount paid by the customer, but only providing they have taken reasonable steps to identify the seller's place of establishment, where the goods were located at the time of supply, and that the amount charged for the goods was correct.

Online marketplaces are therefore advised to ensure that they have established compliance procedures and, in the absence of such procedures, to seek appropriate legal and financial advice.

Should you be switching schemes to become more tax efficient? We can help..

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system when it starts. If you are a sub-contractor using the VAT flat rate scheme, it may be beneficial to leave that scheme as you may be entitled to a VAT refund on your expenses from 1st March 2021. Our team of tax experts have the knowlege to ensure you are maximising your tax efficency. Contact our Director, Nick Bonnello, today on 0115 964 8860 or email him directly at nickb@rwbca.co.uk to find out how we can help you prosper.

The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.