VAT enforcement measures for overseas retailers
One of the measures included in the Finance Act 2016 concerns the introduction of new powers to help combat the growing problem of overseas traders selling goods in the UK using online marketplaces (such as Amazon and eBay). This measure was first announced by the government at Budget 2016.
HMRC has now published an update which has shown a ten-fold surge in VAT registration applications from internet retailers during 2016. In 2015 there were a total of 695 VAT registrations from overseas retailers compared to 7,185 VAT registrations in 2016. This figure is expected to continue to grow in 2017 as awareness of the new measures to tackle VAT abuse gain traction.
Under the new rules, HMRC now has power to force overseas retailers to appoint a UK-based VAT representative or provide a financial guarantee. If the overseas retailer fails to comply then the online marketplace used by the overseas retailer can be jointly and severally liable for unpaid VAT. This will only happen if and when the overseas trader does not comply with HMRC’s directions. HMRC will then put the online marketplace on notice that it may be liable for the VAT in respect of the overseas trader’s future sales through its marketplace.
The notice will also set out a period of time (normally 30 days) during which the online marketplace can take steps so it does not become liable, either by securing the VAT due from the overseas business or by removing it from its marketplace. After this period of time, the online marketplace will be held liable if no such action has been taken.
Many of these online retailers have operated as if they were a UK business with the goods being stored and dispatched directly from UK warehouses. HMRC has also been taking action to seize goods from UK warehouses where goods have been stored and overseas traders have not paid the VAT due to HMRC. The new measure is expected to bring in additional VAT revenues of £875m by 2021.