Changes to VAT rules for online retailers to boost Exchequer’s revenue

Leaked documents seen by the Financial Times show that HMRC is planning to end VAT exemption for UK sales of overseas goods, on January 2021.

“Anything they do that can increase the tax shield has got to be advantageous when we’re looking to recover from economic challenges,” says Adam Harper, AAT director of strategy and professional standards.

The VAT rules are “particularly pertinent today” says Harper, as the latest Office for National Statistics (ONS) figures show that the government borrowed £55bn in May.

“The long-term benefit of establishing that parity and contributing towards closing the tax gap is that it will benefit the wider economy, and therefore, the UK public at large,” he adds.

HMRC’s measures could raise significant revenue for the Exchequer, particularly as the UK government debt has skyrocketed due to support provided to businesses and households during the pandemic.

Another report released by Edge Ascential, also seen by Accountancy Age, revealed that UK e-commerce sales predictions for 2020 rose from £73.6bn to £78.9bn due to the increase of online shopping caused by lockdown. In 2019, online sales sat at £66.3bn.

Current economic circumstances have pushed new VAT rules to become an “essential step to be considered,” says Harper, when tackling tax evasion for e-commerce giants.

“These businesses that are trading outside the UK or traders that are based outside the EU selling goods online to customers in the UK, they should be charging VAT if those goods are already in the UK at the point of sale,” he adds. “They’re claiming that they’re not. But the issue is that many of these organisations have fulfilment houses, so the goods are already in the UK at the point at which they’re sold. Arguably, that means they can charge.”

In 2016, HMRC established VAT obligations for online marketplaces selling goods in the UK – but the 2017 Public Accounts Committee deemed they were not sufficient enough in tackling VAT tax fraud. VAT fraud by online sellers caused a loss of UK tax revenue estimated between £1bn and £1.5bn in 2015/16.

While the new VAT rules would reduce tax evasion, Harper says they would also “level the playing field for small businesses, whether they are physical or online businesses,” meaning that UK businesses paying the added value tax would no longer face unfair competition.

Despite welcoming the new VAT rules, Harper says the deadline set by HMRC will be very difficult to meet.

“The challenge they’re going to face is to try and implement these measures by January. That’s quite a keen timeline to deliver,” says Harper.