Guidance

Tackling online VAT fraud and error - the role of online marketplaces in co-operating with HMRC (The agreement)

Updated 3 September 2018

Introduction

The growth in online e-commerce is an important part of the UK economy but has also created opportunities for abuse of the VAT system.

Online marketplaces play a vital part in creating the environment in which British businesses can sell to customers throughout the world and UK consumers can buy goods from businesses from all over the world. While they do not have visibility of whether the businesses on their marketplaces render and pay their VAT returns, online marketplaces may, in certain circumstances, be able to identify non-compliance with VAT registration rules and collect data on the trading activities of those businesses. Online marketplaces can be highly effective in educating and informing third party businesses to encourage VAT compliance and in providing HMRC with data and other information to assist their investigations and improve compliance.

There is now a public and parliamentary expectation on online marketplaces ‘to play a wider role in ensuring their users are compliant with the tax rules’ (Policy paper: Autumn Budget 2017). The Public Accounts Committee also recommended putting in place an agreement that sets out collaborative working arrangements between HMRC and online marketplaces.

Purpose

This agreement is intended to foster a collaborative relationship between HMRC and online marketplaces to promote VAT compliance by users of the marketplaces which is underpinned by a set of legal obligations on the online marketplaces and a set of legal powers of HMRC. HMRC has committed to working with online marketplaces to set out a cooperation agreement that would include commitments for collaborative working arrangements, exchanges of data and timeliness of responses to evidence of non-compliance.

This document sets out the commitments between HMRC and the undersigned online marketplaces that have third party businesses (whether UK based or overseas) operating on their marketplace that are liable to pay VAT in the UK. These are separate to the legal obligations placed on such online marketplaces by UK VAT legislation such as sections 77B, 77BA and 77C-77E of the VAT Act 1994.

The commitments made in this paper do not create binding legal obligations.

Commitments by online marketplaces

1) Provision of data

By signing this agreement, all online marketplaces commit to providing HMRC with data about the businesses operating on their marketplaces (selling to UK consumers) both in bulk form and on an individual business basis to assist HMRC with tackling online VAT fraud and error. This provision of data will be on request from HMRC and should be provided either voluntarily or in response to the issuing of a legal notice.

HMRC recognises that online marketplaces operate different business models in various jurisdictions and may hold varying types of data and/or require different approaches to the provision of data. By signing up to this agreement, each online marketplace agrees to find a suitable and legally compliant mechanism for providing HMRC with data on a timely basis via one of the above routes.

Whilst the data items available may differ across different online marketplaces, at a minimum the data provided will be sufficient to allow HMRC to:

• identify individual business sellers
• calculate the value and volume of UK sales of individual businesses over a prescribed period (eg, one year)
• contact the individual business directly

The data requested by HMRC could form part of a one off request or be for a regular flow of data over a prescribed period of time.

2) Education for sellers

Online marketplaces agree to ensure that sellers have access to information about sellers’ VAT obligations in the UK, including for UK and EU sellers as well as non-EU sellers. Online marketplaces may choose to provide guidance or assistance themselves or to direct sellers to other information, including HMRC’s guidance information on GOV.UK.

3) Responding to evidence of non-compliance

Online marketplaces agree to respond expeditiously when notified by HMRC that sellers are using their marketplace in breach of UK VAT legislation obligations. In addition, each online marketplace will have systems to take appropriate action whenever presented with evidence of potential non-compliance with UK VAT registration obligations. For example:

• include a request for the VAT registration number from the relevant business within the account opening process
• where evidence of potential non-compliance with registration requirements is presented, contact the seller directly to clarify the position within 30 days
• where the concern about non-compliance with UK VAT registration obligations persists, to implement appropriate sanctions up to and including restricting the seller from selling on the UK marketplace or removing it

Online marketplaces agree to inform HMRC when it has restricted the seller from selling on the UK marketplace or removed a particular seller from its marketplace for non-compliance with UK VAT legislation obligations within 30 days of that action.

HMRC acknowledges that the 30-day clarification period mentioned above is separate from the statutory periods set out in sections 77BA and 77E of the VAT Act 1994 which carry precedence.

Notifications to HMRC can be sent by email to [email protected].

Responsibility of HMRC

Requests for data to online marketplaces by HMRC will be made on a case by case and on a risk basis. In all cases where it receives information about sellers from online marketplaces, HMRC will respect the ‘commercial-in-confidence’ status of information subject always to any overriding legal obligation.

HMRC acknowledges the need to maintain a level playing field between online marketplaces and will ensure that this agreement is made available to all online marketplaces.

HMRC will publish the list of all online marketplaces that sign up to this agreement. In the event that a signatory does not comply with this agreement HMRC will remove them from the list. This includes failing to identify a legally compliant way of providing data to HMRC when requested.