Government consults on proposed VAT “Split Payment” model

Written on 3 Apr 2017

The UK government has announced that it is considering whether a ‘Split Payment’ model would be feasible for overseas online supplies of goods to UK consumers

Recent VAT changes to online supplies of goods to UK consumers

Under the UK VAT joint and several liability provisions for online marketplaces, HMRC already has powers to hold online marketplaces jointly and severally liable for any UK VAT due on sales of goods to UK consumers.  These provisions came into force in September 2016, where an overseas trader who operates through an online marketplace is liable to be registered and account for UK VAT and they fail to do so.

The Split Payment model for collection of UK VAT on online sales: a radical approach?

Building on this recent legislation, the UK government has been examining additional ways to tackle overseas traders that avoid paying UK VAT on goods that they sell to UK customers who purchase those goods through online marketplaces.

On 20 March 2017, the UK government published a call for evidence on the case for a new VAT collection mechanism for online sales. The call for evidence looks at an alternative method of collecting VAT for online business-to-consumer sales and is focused on how payment technology could be harnessed to extract VAT from online purchases at the point of purchase. This is often referred to as a ‘Split Payment’ model.

How could this affect your business?

If adopted, this proposal would be a huge change and one which places a significant burden on the payment provider and may result in increased costs for platforms and on-line sellers.  The contracting arrangements of all the parties involved in a transaction may need to be significantly amended and wholesale changes to payment systems may be required. Such changes may have a significant cost implication for all businesses involved and for the end-customers.

The proposed changes will also have significant cash flow and funding implications for sellers, who could be required to pay VAT up to 4 months earlier than under the current rules. At the moment, the proposed changes are being described as an anti-avoidance measure applying only to cross-border online sales. However, once the technology is in place to allow for split payment, in theory there is no reason why it could not be extended to domestic online sales as well once the UK leaves the EU.

If the proposals are adopted, online suppliers will need to review the terms of their contracts and make changes to account for the fact that VAT would need to be paid to HMRC at the point of purchase of the relevant goods.

Feeding into the call for evidence

Osborne Clarke is preparing a response to the call for evidence, if you would like to feed into this response, please get in touch with one of our experts set out below. The closing date for comments to be submitted to HMRC is 30 June 2017.