Policy paper

VAT: extending joint and several liability for online marketplaces and displaying VAT numbers online

Published 22 November 2017

Who is likely to be affected

Businesses selling goods to UK consumers via online marketplaces where those goods are in the UK at the point of sale.

Online marketplaces that control and support the sale of such goods by any business through their marketplace.

General description of the measure

The measure extends existing joint and several liability legislation:

• it will enable HM Revenue and Customs (HMRC) to hold online marketplaces jointly and severally liable for any future unpaid VAT of a UK business arising from sales of goods in the UK via that online marketplace

• it will enable HMRC to hold online marketplaces jointly and severally liable for any unpaid VAT of a non-UK business arising from sales of goods in the UK via that online marketplace where that marketplace knew or should have known that the non-UK business should be registered for VAT in the UK

• it will require online marketplaces to display a valid VAT number for all their sellers using their platform, when they are provided with one. They will also be required to ensure that VAT numbers displayed on their website are valid. This ensures that fictitious and hijacked VAT numbers are not displayed. These requirements will be supported by a penalty

The legislation only applies to those businesses who are not compliant with their VAT obligations and HMRC will only issue notices to online marketplaces where it is satisfied that a business is non-compliant.

Policy objective

The government is building on its package of measures announced at Budget 2016 to tackle online VAT evasion and non-compliance in the tax system and reduce the tax gap.

The objective of the measure is to:

• give HMRC strengthened operational powers to tackle the evasion and non-compliance by some UK businesses that fail to pay VAT on sales of goods made to UK consumers via online marketplaces. It is directed at getting UK businesses that are or should be VAT registered paying the VAT due on their UK sales

• encourage online marketplaces to ensure that non-UK businesses using their website are complying with the VAT registration rules. It is directed at getting non-UK businesses that should be VAT registered paying the VAT due on their sales

• ensure that the VAT numbers of all businesses selling goods in the UK via online marketplaces are displayed on that online marketplace and are accurate. This helps consumers to make more informed choices when purchasing online, enabling those consumers wishing to buy from a VAT-registered business to do so with confidence. It also assists HMRC, consumers and the online marketplaces identify non-compliant traders, as they will be able to verify the online seller’s VAT number, which will need to be displayed in a clearly visible way

This measure will help level the playing field for businesses.

Background to the measure

The measure was announced at Autumn Budget 2017. There has been no prior consultation.

Detailed proposal

Operative date

The measure will have effect from Royal Assent to Finance Bill 2017-18.

Current law

Current law for joint and several liability is in Section 77B of the VAT Act 1994 (VATA94). These changes were effective from 15 September 2016 by Section 124 of the Finance Act 2016.

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 to:

• amend Section 77B of VATA94 by removing references to ‘UK-established’ in subsections (1) and (12) and omitting subsection (10)

• enable HMRC to hold an online marketplace jointly and severally liable for the unpaid VAT of a non-UK business that sells goods in the UK via that online marketplace’s website where that marketplace knew or should have known that the non-UK business should be registered for VAT in the UK

• require online marketplaces to display a seller’s valid VAT number when they are provided with one or the online marketplace offers a facility to display one

• amend Section 69 of VATA94 to enable a penalty to be applied where the online marketplace is in breach of the requirement relating to displaying sellers’ valid VAT numbers

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
-	+10	+20	+40	+50	+45

These figures are set out in Table 2.1 of Autumn Budget 2017 as ‘Online VAT fraud: extend powers to combat’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing accounts for the potential coverage of the measure and a behavioural response, whereby some online sellers may find ways to mitigate its impact.

Impact on individuals, households and families

The measure has no impact on individuals or households as it only affects businesses. However, the requirement to display valid VAT numbers should increase online consumers’ ability to see whether a seller operating on an online marketplace is VAT registered. It will help consumers to make more informed choices when purchasing online and enable those consumers wishing to buy from a VAT registered business to do so.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that this measure will impact on groups sharing protected characteristics.

Impact on business including civil society organisations

This measure will help to level the playing field for businesses by ensuring that VAT is paid on all sales of goods made in the UK, and by ensuring consumers are not misled by fictitious and hijacked VAT numbers being displayed on online marketplaces. This measure will impact on a small number of online marketplaces and overall the impact on their administrative burdens is expected to be negligible.

One-off costs: Online marketplaces are expected to familiarise themselves with the extension of the joint and several liability legislation and build functionality to enable the display of VAT numbers for sellers on their websites. They are also expected to develop new or enhance existing processes to check the validity of VAT numbers and review non-UK seller information to identify those that are not VAT-registered but potentially should be. These one-off costs are expected to be negligible as the marketplaces are already reasonably familiar with joint and several liability regime although the government acknowledges that more time may need to be spent on familiarisation with the ‘knew or should have known’ aspect of the measure. Additionally, some marketplaces already have the functionality to collect and display VAT numbers and have processes in place to check their validity.

On-going costs are expected to include the handling of joint and several liability notices for UK sellers and reviewing information on identified UK and non-UK sellers that should potentially be VAT-registered. These costs are estimated to be negligible as the marketplaces are already familiar with the joint and several liability regime and the time spent dealing with any additional notices is expected to be negligible. Additionally, some marketplaces already carry out checks to determine whether sellers should be registered for VAT and the validity of provided VAT numbers. HMRC will also assist the marketplaces by providing details of VAT numbers that are no longer valid, to enable to marketplace to take the required action to remove the seller where appropriate. This measure will have no impact on compliant sellers who are VAT registered and correctly accounting for VAT in full on all sales of goods made in the UK. Compliant sellers may also incur a negligible one-off cost of familiarisation with the fact that their numbers will be displayed online. This measure will impact on non-compliant sellers who are required to be registered for VAT and who are not, and those who are VAT registered and do not provide a valid VAT number.

This measure is not expected to have any impact on civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will incur operational costs estimated at £16.16 million over 5 years to implement and operate changes to extend joint and several liability for online marketplaces.

HMRC costs in respect of online marketplaces displaying sellers’ VAT numbers are expected to be negligible.

Other impacts

This measure may have some impact on the justice system because it could increase the number of disputes with HMRC.

Monitoring and evaluation

This measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please email: James Smallbone or Telephone: 03000 536986.