August 23, 2016

UK: overseas businesses and online marketplaces affected by new VAT measures to tackle tax evasion

This year, the United Kingdom is introducing new, tough measures to prevent overseas online stores selling products to UK consumers from breaching VAT provisions and evade tax. As HMRC point out on their website: “Overseas businesses who sell goods (located in the UK at the time of sale) to UK consumers, mainly via online marketplaces, are not always paying the correct VAT and duty to HMRC. These goods are normally shipped to the UK before sale and stored in fulfilment houses close to their final delivery point”.

In particular, the new measures included in the Finance Bill 2016, which has not received Royal Assent yet and thus has still to become effective, give HMRC the power to:

  • Compulsorily register non-compliant overseas business for VAT in the UK;
  • Direct these overseas business to appoint a UK-established VAT representative;
  • Require an appropriate form of security.

Not only: if the overseas business does not comply with HMRC’s directions and/or continues not to comply with VAT regulations, “HMRC will contact the online marketplace through which the overseas business is trading and put the marketplace on notice that it may be held jointly and severally liable for the VAT in respect of the overseas business’ future taxable sales through that online marketplace. The notice will also set out a period of time (normally 30 days) in 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, the online marketplace will be held jointly and severally liable if no action has been taken“.

The measures are included in the Finance Bill 2016 and will take effect from the date of Royal Assent (most likely, Fall 2016).