Budget 2016: eBay and Amazon “can be made liable” for seller VAT fraud

George Osborne included measures to tackle VAT fraud by overseas sellers on marketplaces such as eBay and Amazon in the 8th Budget he delivered as Chancellor of the Exchequer this afternoon.

What’s in the Budget?

Here is the section on the Gov.uk Website verbatim. You can find it here in section 4.28.

Tackling VAT evasion by overseas sellers
The government is taking firm action to protect the UK market from unfair online competition. Some overseas traders from beyond the EU avoid paying UK VAT, undercutting online and high street retailers and abusing the trust of UK consumers who purchase goods via online marketplaces.

Budget 2016 announces action that will help to protect consumers and level the playing field for businesses. HMRC will be able to require non-compliant overseas traders to appoint a tax representative in the UK, and will be able to inform online marketplaces of the traders who have not complied. If traders continue to evade VAT and no action is taken to prevent the fraud, then online marketplaces can be made liable for the VAT.

The government will also introduce a due diligence scheme for the fulfilment houses where overseas traders store their goods in the UK. This will make it harder for VAT evading firms to trade. While the government continues to take action domestically, the global nature of the fraud means international action is also required. The UK has already raised this issue with EU and international partners and the EU and OECD’s current work programmes include further work to help combat this fraud.”

So, it seems like a step in the right direction. Obviously it depends on how HMRC exercises their new powers and then how the marketplaces respond. But the threat is there if the marketplaces don’t do their best to kick off non-complaint sellers that they can be held liable for the VAT. But my guess is that things won’t get that far.

eBay’s comment

eBay has commented on the Budget this afternoon: “eBay has always been committed to making our platform a fair place to buy and sell. We expect all our sellers to comply fully with their legal obligations including VAT. We welcome rules that ensure a fair marketplace and will review the detail of the legislation. Even without such a law, we would not hesitate to suspend sellers found by HMRC to be evading VAT. We are already working closely with HMRC on this issue and will continue to assist their efforts. We already continuously remind all our users of their need to comply with their legal obligations and take proactive steps around the world to ensure our sellers comply with the law. For example, we have established a dedicated information centre on our site for Chinese sellers to assist them in understanding their tax obligations. We have also contacted hundreds of Chinese sellers to notify and educate them on the need to comply with the law.”

The small print

And here’s detail on how it will actually work, taken from this page:

How will they work?

These new measures will not apply automatically to all overseas businesses and/or online marketplaces. These are discretionary powers that will enable HMRC to target the most non-compliant overseas businesses and take the most appropriate action on a case by case basis. HMRC will use risk assessment tools to first identify those overseas businesses that are high risk and/or continue to be non-compliant with UK VAT rules.

HMRC will then attempt to gain compliance directly with the overseas business by making contact with them.

Where appropriate HMRC will then consider whether to:

– compulsorily register the overseas business for VAT in the UK
– direct the appointment of a UK-established VAT representative
– require an appropriate form of security

Where the overseas business does not comply with HMRC’s directions and/or continues to be non-compliant, HMRC will contact the relevant online marketplace through which the overseas business is trading. It will put the online marketplace on notice that it may be held jointly and severally liable for the VAT in respect of the overseas businesses future taxable sales through that online marketplace. The notice will also set out a period of time (normally 30 days) during which the online marketplace can avoid being held jointly and severally liable either by securing compliance from the overseas business or removing it from its online marketplace. After this period of time, the online marketplace will be held jointly and severally liable if no such action has been taken.”