Find out what VAT checks you must carry out on sellers if you're an online marketplace operator, and what HMRC will do if you don't meet their requirements.
From 15 March 2018 new legislation allows HM Revenue and Customs (HMRC) to hold you, as the operator of an online marketplace, jointly and severally liable for the unpaid VAT of overseas sellers operating on your marketplace where:
- an overseas seller operating on your marketplace hasn’t registered for UK VAT
- you, as the operator of the online marketplace, knew or should have known that the seller should be registered for UK VAT
These new rules also extend existing rules, so you can also be held jointly and severally liable if HMRC tells you that a UK or overseas seller operating on your marketplace is not meeting its VAT obligations.
This guidance will help you understand:
- how the new legislation will be applied by HMRC
- what information you should get from sellers, to help you decide if they should be registered for VAT in the UK
- when HMRC can hold you jointly and severally liable for the unpaid VAT of a seller operating on your marketplace
HMRC define an online marketplace as a website (or any other means by which information is made available over the internet) that anyone - including the online marketplace operator - can use to offer goods for sale.
You operate an online marketplace if you control access to it, or its contents.
This applies even if the online marketplace:
- isn’t established in the UK
- sells its own goods over the internet
HMRC define you as an overseas seller if you sell goods stored in the UK to UK consumers and don’t have a business establishment in the UK.
A seller is established in the country where the functions of their business’s central administration take place. To work out where that is consider where:
- essential management decisions are made
- their registered office is located
- management meetings take place
You’re also an overseas seller if you’re based outside the EU and sell goods to a UK consumer, then import them into the UK.
Read chapters 9 to 13 of VAT Notice 700/1: should I be registered for VAT? to decide if a person has a business establishment or other fixed establishment in the UK related to any business they carry out.
Read the VAT registration section of the HMRC internal manual for more detailed guidance on what a non-established taxable person is.
Who must register for VAT
Sellers based in the UK must register for VAT if they’re selling goods as a business activity in the UK and their business’s VAT taxable turnover is more than £85,000 a year.
Overseas sellers must register for VAT if they meet all of the following conditions:
- they’re selling, or will be selling taxable goods in the UK as a business activity now, or will be within the next 30 days - this includes selling goods:
- in the UK at the point of sale
- to a UK consumer, and then imported into the UK by the seller
- they don’t have a business or other fixed establishment in the UK relating to any business you carry out
- they advertise or offer goods for sale on a website that will be supplied in the UK
Private individuals who make ‘one-off’ or occasional sales don’t need to register for VAT.
Read businesses that sell goods in the UK using online marketplaces if you’re a seller that uses an online marketplace.
Checks online marketplace operators need to make
Check the seller’s VRN
You should request a VRN when you think a seller offering goods for sale on your marketplace should be registered for UK VAT.
It’s up to you to validate the VRN of a seller operating on your marketplace within 10 days of receiving it.
You can check the VRN on the EUROPA website. UK VAT registrations are updated every day.
VRN display and verification requirements
You must display a verified VRN on your website within 10 days of the seller giving you it - unless the seller has given it to you before they offer goods for sale on your online marketplace, when the deadline is extended to the end of the day when the seller first offers goods for sale on your marketplace.
You should also take reasonable steps to remove any VRNs that are displayed on your online marketplace within 10 days of you becoming aware that that they’re wrong.
If you don’t you could be liable to a penalty.
If an overseas seller hasn’t registered for VAT you could also be jointly and severally liable for their unpaid VAT if HMRC decide you knew or should have known.
VRN mismatch or discrepancy
If there are any differences in the name of the online seller on your database and the EUROPA website you should treat it as a discrepancy.
If you identify a minor difference between the 2 databases, carry out further checks to confirm that the seller isn’t using another business’s VRN.
If the only difference is in a prefix or a suffix in the business name (for example, ‘Ltd’ rather than ‘Limited’), then it’s reasonable for you to decide that the VRN and the name shown on the EUROPA website accurately match with the business name on your database, if there aren’t other indicators that they aren’t meeting their VAT responsibilities.
If you identify a significant difference between the 2 databases (for example, if the name of the seller on your database is clearly different from the name of the VAT registered business on the EUROPA website) it’s reasonable for you to decide that the seller isn’t registered for VAT, and is using another business’s VRN.
HMRC will consider a range of factors before deciding if you’ve correctly validated a VRN.
These will include if there was any information you held or you should have reasonably requested that would help you decide the seller should have registered for VAT.
Seller has registered for VAT but hasn’t received a VRN yet
Don’t allow an overseas seller to continue to trade on your marketplace if they don’t have a VRN and they’re either:
- advertising or offering goods for sale
- trading on your marketplace and haven’t provided you with a valid VRN after 60 days of trading
You should suspend the seller’s account or remove it from your marketplace and tell them to contact the HMRC VAT Helpline if this will cause them any problems.
How to decide the location of goods at the point of sale
You should normally be able to decide the location of goods at the point of sale or when goods are either offered or advertised for sale to UK consumers on your marketplace from information that you already hold. This will include:
- if the goods are fulfilled by your own fulfilment houses in the UK, then information held by this part of your business
- information you have obtained from the overseas seller about the location of the goods
- information displayed by the overseas seller on your online marketplace
- your terms and conditions which may stipulate that the seller has to import the goods
You should also have information about the speed of delivery of the goods. This might show that information given to you by an overseas seller about the location of the goods is wrong, as it wouldn’t be possible for it to deliver the goods from that location in the timeframe they’ve advertised.
We would expect you to ask the overseas seller for more information in these cases.
The ‘knew or should have known’ test for online marketplaces
HMRC may hold you jointly and severally liable for any unpaid VAT due on sales an overseas seller has made on your marketplace if you knew, or should have known, that an overseas seller offering goods for sale on your marketplace should have registered for UK VAT and hasn’t.
You’ll be liable for the unpaid VAT if you haven’t stopped the overseas seller from offering goods for sale on your marketplace after 60 days from the date that you first knew or should have known.
You’ll continue to be liable until the overseas seller meets their VAT obligations.
How HMRC will apply the ‘knew or should have known’ test
We’ll consider a range of factors to decide if you knew or should have known that an overseas seller operating on your marketplace hasn’t registered for UK VAT.
These will include:
- if there was any information you held or you should have reasonably requested that would help you decide the seller should have registered for VAT
- how much due diligence you’ve taken, including the checks you’ve made
We’ll contact you if we consider that you should be made liable for the overseas seller’s VAT.
Information online marketplace operators should check for overseas sellers
You should carry out reasonable due diligence checks on new sellers setting up accounts on your website to be sure that they’ve registered for UK VAT, and should carry out checks on each one. Some of these checks include:
- that the VAT Registration Number (VRN) a seller gives you, or is or displayed on your online marketplace, is valid
- the location of the seller
- the location of the goods that will be sold by the seller
- if the seller, or those directing the seller, has been removed from your online marketplace before
- how quickly the seller is able to fulfil orders from UK consumers
- how the seller fulfils orders from UK consumers
- if there’s anything about information that the seller, HMRC or a third party gives you that might indicate dishonest conduct or failure to meet their VAT obligations
- monitoring when the seller begins to offer goods for sale on your online marketplace
If an overseas seller opens an account on your online marketplace it should alert you that they’re likely to start selling goods in the near future and should register for VAT.
Tell HMRC when you identify and remove a seller who hasn’t met their VAT obligations from your marketplace.
If you find out an overseas seller’s VRN is invalid
If you discover a VRN for an overseas seller is invalid, and don’t take prompt action to remove the seller from your online marketplace you could become jointly and severally liable for the sellers unpaid VAT if the seller is still operating on your marketplace 60 days after the initial 10 day period has ended.
HMRC notifications for sellers who fail to meet VAT requirements
Notification of joint and several liability for online marketplace operators
HMRC will issue you with a joint and several liability notice when it identifies any seller on your marketplace that isn’t meeting its VAT requirements.
You’ll then have a specified period (usually 30 days) to stop that seller from offering goods for sale to UK consumers on your marketplace.
Any liability notice issued to you as an online marketplace operator will continue until either:
- it’s withdrawn by HMRC
- you tell HMRC you are no longer the operator of that online marketplace
HMRC can withdraw the notice:
- if we’re satisfied the seller has fully met all its VAT obligations, and continues to do so
- where the seller is prevented from selling on the online marketplace and, after a sufficient period of time, HMRC is satisfied that they are no longer a significant risk
You won’t be assessed for the seller’s VAT if you stop the seller from selling goods on your online marketplace within the time specified in your liability notice.
You also won’t be assessed if HMRC is satisfied the seller using your online marketplace is fully meeting its UK VAT obligations.
Notification of the ‘knew or should have known’ test for overseas sellers
HMRC will send you a notification if they decide that the ‘knew or should have known’ test applies to you in relation to an overseas seller who was still selling goods, but failing to account for VAT, on your marketplace 60 days after you had enough knowledge to make that decision.
- explain why the ‘knew or should have known’ test applies
- tell you the amount of unpaid VAT that you’ve been made jointly and severally liable for
- send you a VAT assessment
How to challenge or appeal a HMRC decision
How to challenge a HMRC decision to make you liable for a seller’s VAT
If you don’t agree with HMRC’s decision to assess you for the unpaid VAT of a seller operating on your marketplace you can:
- ask for the decision to be reconsidered by the assessing officer
- ask for an independent review
- appeal the assessment making you jointly and severally liable for the unpaid VAT of a seller operating on your marketplace
There are some differences to the general appeals guidance on what to do if you disagree with a tax decision.
You can appeal against:
- a VAT assessment (including when you’re assessed for the unpaid VAT of a seller operating on your marketplace)
- HMRC imposing a VAT penalty
You can’t appeal against being issued with a liability notice.