Digital marketplaces should shoulder VAT responsibility

Digital marketplaces should shoulder VAT responsibility

Call for digital marketplaces to collect and pay VAT on behalf of sellers.

Digital marketplaces should shoulder VAT responsibility

The Association of Accounting Technicians (AAT) has called on the government to enact legislation to make online platforms responsible for VAT collection.

According to the AAT, online marketplaces like Amazon, eBay and Etsy are home to third party sellers, who sometimes sell goods without charging VAT. The UK’s HMRC estimated that online VAT fraud, including not charging VAT for goods sold, costs the Exchequer £1bn to £1.5bn in lost revenue a year.

“What we’re seeking is to have the government introduce legislation that will make online marketplaces like Amazon, eBay and others liable for the collection and remittance of VAT,” says Phil Hall, Head of Public Affairs & Public Policy at AAT.

“Over the last two years, the majority of US states now do this with their goods and services. Australia introduced regulation 18 months ago and New Zealand, the same over the last few months. It seems that the UK is sadly behind the curve”.

“As other countries clamp down on it and we don’t, we become increasingly attractive to [offshore sellers] as a place to operate.”

On top of the lost revenue in the state coffers, VAT fraud has adversely affected many small businesses who lose sales to these third-party sellers that offer an illegal 20% VAT saving.

“It’s not just the money that’s lost to the Exchequer, which means that there’s less money to invest in public services. It’s also the significant issue of harm it does to legitimate small businesses who can’t compete, because their prices are at least 20% more expensive, because they’re having to charge VAT. They’re competing against a significant number of companies who are quite wrongly not charging VAT,” Hall says.

Current legislation not enough

Under the current rules, individuals or businesses using an online marketplace must register a VAT identification number. However, HMRC estimates that sellers located outside the UK are responsible for 60% of lost VAT revenue.

HMRC can hold online marketplaces liable for unpaid VAT. This does not go far enough as many sellers continue operating without charging consumers VAT, says Hall.

By shifting responsibility of VAT collection from the seller to the online marketplace, it will be easier to collect and track the VAT that is owed to the government, he says. “Amazon, eBay, and others, already have all this information. They know exactly what the sales are and the values, it’s relatively easy for them to do.”

“What’s very difficult is the government or some other body, to start interfering in each individual’s transactions. That’s why I think it’s so difficult under the current legislation to address this problem effectively”.

EU regulation to make digital marketplaces responsible for VAT is set to come into force in January 2021, but the UK is scheduled to be out of the transition period by then, meaning the country is not obligated to transpose the regulation. But Hall says the EU regulation did not go far enough and hopes any new regulation would be more comprehensive.

“[The EU] imposed a transaction threshold which no other country has done, to only apply to transactions below 150 euros. Our argument is there’s no need to do that, it should be on all transactions”.

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