The Chartered Institute of Taxation (CIOT) has recommended that the UK Government rethink its approach to ensuring that online sellers pay the correct amount of value-added tax (VAT).
According to HM Revenue and Customs (HMRC), non-EU traders who sell goods (located in the UK at the time of sale) to UK consumers, mainly via online marketplaces, do not always pay the correct VAT and duty. It estimates that such abuse accounts for between GBP1bn (USD1.3bn) and GBP1.5bn of the total VAT gap.
Under the Government's proposals, overseas traders would be required to appoint a UK tax representative who would be liable for their VAT, and/or would need to provide security to guarantee payment. "If these traders fail to comply and online marketplaces do not help stop the abuse occurring, the online marketplaces themselves will become jointly and severally liable for the unpaid VAT," HMRC explained.
The CIOT has warned that the proposal risks capturing too many businesses through the use of imprecisely defined terms, such as "fulfilment house" (which includes online marketplaces). It said that the primary targets of the new regime should be those overseas sellers who seek to evade the tax, and not legitimate UK businesses that unwittingly deal with them.
Peter Dylewski, Chair of the CIOT's Indirect Taxes Sub-Committee, said: "Our concern with HMRC's proposal is that it targets intermediaries in the supply chain and not those who are failing to comply. On the one hand, this places a burden on legitimate UK businesses and on the other hand it may unintentionally give the impression to potential tax evaders that they will not be pursued by HMRC."
The CIOT has called on HMRC to explore other possible solutions. These include requiring the online market place to remit the VAT on the full sale price of the goods to HMRC and the proceeds (net of its commission) to the seller. It said overseas businesses could opt out of this arrangement if they could prove that they are tax compliant or not actually in business.