Cross-Border Sellers Beware: The VAT Man Cracks Down on Online Tax Evasion

  • 28 November 2017 KnowGlobal

This year’s budget announcement in the UK has seen a major crack-down on online tax avoidance by bringing in significant changes to assist authorities in clamping down on the unfair advantage gained by online businesses evading the rules on VAT compliance. The policy seeks to tackle the estimated £1.2billion lost in the abyss of cross-border e-commerce.

HMRC is expected to spend a whopping £16.16 million over the next 5 years to implement and operate the changes. The government means serious business, online sellers can no longer put their heads in the sand and must take a proactive approach to ensuring their VAT compliant.

The Finance Bill 2017-18 will hold online marketplaces such as Amazon and eBay jointly and severally liable along with sellers for any future VAT not correctly charged and accounted for arising from the sale of goods in the UK.

The bill will come into force on Royal Assent in the spring next year and will introduce the following changes;

–          an extension of HMRC’s powers to hold online marketplaces jointly and severally liable for any unpaid future VAT of traders (including UK traders) selling on their platforms

–          an extension of HMRC’s powers to hold online marketplaces jointly and severally liable for any unpaid VAT of non-UK traders that fail to account for VAT where the online marketplace knew or should have known that the business should be registered for VAT, and

–          a requirement for online marketplaces to display the VAT numbers of all sellers and ensure that these VAT numbers displayed are valid


Who is affected by the changes?

  1. Non-UK businesses selling via online marketplaces to the UK – the measures are targeted to ensure that those non-UK businesses that should be VAT registered are paying the VAT due on their sales.
  2. Online Marketplaces – by making them jointly liable for unpaid VAT, the changes put an obligation on these marketplaces to introduce measures to ensure their sellers are VAT compliant
  3. UK Businesses – even UK based sellers need to be wary as if you’re selling over the threshold and are not yet registered for VAT you are likewise non-compliant. It is also worth noting that although the threshold was not reduced this time round, it remains a distinct possibility in the near future. UK businesses should avoid any issues by registering in advance.


What do you need to do next?

If you’re selling into the UK, whether it be from Europe, US or anywhere else in the world, it is crucial that you take the time to understand when and how you should be charging VAT on sales in the UK. With tax authorities clamping down and marketplaces themselves forced to take action against sellers, it will only be a matter of time before your business will come under the microscope so be sure to take a proactive approach to compliance.

What’s more, it is also very likely that such moves made by the UK will be mirrored by other countries and so UK digital businesses operating overseas will be equally affected as tax authorities worldwide seek to crack down on online tax evasion.

For your free initial consultation and advice on your VAT obligations, speak to the KnowGlobal team today!

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