UK’s VAT Pact Gets Off To An Inauspicious Start

By Global Tax Weekly

The UK has eased the tax shackles on small-time “digital entrepreneurs,” with the introduction also of a similar “sharing economy tax allowance.”

However, another more recent initiative to encourage compliance with UK VAT rules among online marketplaces and those that use them has got off to a less-than-auspicious start, and it’s not difficult to see why.

The new scheme is intended to allow online marketplaces to demonstrate their support for the proper collection of VAT. However, the honor of having their name on a list of VAT-compliant marketplaces involves some fairly extensive requirements. These include supplying HMRC with information on marketplace sellers, including, at a minimum, a sellers’ identity; the value and volume of sales of each seller; and the sellers’ contact details. This is in addition to educating sellers about their UK VAT obligations and responding to any evidence of non-compliance. In other words, online marketplaces will be doing much of HMRC’s job for free.

In many respects, this is just part of a trend taking place around the world; increasingly, global sharing economy marketplaces are now effectively the eyes and ears of the tax authority with respect to the individuals and companies that use their platforms to buy and sell services.

Given that the technology behind these portals is almost tailor-made for this task, perhaps this was going to be inevitable in a world with a zero-tolerance attitude towards tax avoidance. Still, it is probably a function that only large companies like Airbnb and other market leaders like it are capable of fulfilling.

Therefore, it comes as little surprise to see that two of the three companies that have signed up to HMRC’s scheme so far are Ebay and Amazon. Don’t expect many small or startup ventures to add their name to the list any time soon.

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