According to a website1 run by a campaigning group of UK eBay and Amazon business sellers, HMRC and UK traders lost out on £27 billion in sales revenue and taxes from such online marketplaces over the last three years alone. The group has campaigned for some time against over-leniency by HMRC towards overseas traders, particularly from China, who have not been charging VAT on products, despite those products being located (often via UK fulfilment houses) and supplied within the UK. Moreover, the overseas sellers’ volumes are also often well over the threshold for registering for VAT if selling from inside the UK, yet many have continued to flout the law and seem to have been getting away with it for a considerable time. That hurts both HMRC in terms of lost VAT and tax revenue, as well as making it difficult for compliant UK sellers to compete against competitor prices that seem ‘too good to be true’.
“This abuse has grown significantly and now accounts for £1 – 1.5bn of the total VAT gap. These overseas traders are unfairly undercutting all businesses trading in the UK, abusing the trust of UK consumers and depriving the government of significant revenue.”
Levelling the Playing Field
However, following new changes that came into effect on 1st August, that is now starting to change. While it’s not yet a perfect system to fight VAT fraud in online marketplaces and level the playing field for legitimate UK businesses, it is at least a start. Genuine private sellers using the platforms will, though, see a small increase to their costs in the form of VAT now being levied on eBay and Amazon fees, but hopefully it’s a small price to pay to make for a more fair, and legal, system overall.
VAT Changes Starting This Month
As part of the March 2016 Finance Bill delivered by then Chancellor George Osborne, UK individuals selling on eBay will begin paying VAT on eBay charges, starting on the 1st of August (2017). The VAT rate will be the standard 20% rate and will be automatically charged on eBay fees to UK sellers who have not registered as business sellers with the company. It may at first seem odd to target non-businesses, but actually this is a way to force the likes of Amazon and eBay to put pressure on those who have not registered with them as businesses when, in many cases, they should have. Such online marketplaces will also potentially become liable for the outstanding VAT on products actually sold if they do not take measures to counter (or remove) non-compliant overseas sellers.
“HMRC will also be given new powers to make online marketplaces jointly and severally liable for the unpaid VAT of overseas businesses who are non-compliant with UK VAT rules and using their platforms to sell through … These measures will provide HMRC with the tools necessary to tackle the overseas businesses who do not comply with UK VAT rules and help level the playing field for all businesses.”
Those businesses operating within the UK will need to properly register as business sellers, in which case they will generally also need to account for VAT as a business if their taxable turnover is above the VAT threshold of £85,000 (or £70,000 if ‘distance selling’ into the UK) over the course of a year.
UK eBay sellers, and overseas sellers supplying/fulfilling orders completely within the UK, will now hold their contract with eBay (UK) Ltd rather than eBay Europe S.à.r.l. and therefore the place of supply of eBay services, from a VAT standpoint, will be the UK.
1 Groups like VatFraud.org say that the new changes don’t go far enough, that many overseas traders (and some UK-based businesses masquerading as private sellers) are still gaming the system and that far more still needs to be done. They will perhaps be heartened by HMRC’s ‘Fulfilment House Due Diligence Scheme‘ that is scheduled to be introduced some time in 2018.
Need VAT, Tax or Accounting Help for your Small Business?
If you’re one of the many who run a successful Amazon or eBay business and want to make sure that you are on the right side of the tax laws, we can help to make sure you’re set up right and are paying no more or less tax and VAT than you absolutely should do. We can help to make sure you are VAT registered if you need to be and can also help you set up as a self-employed trader or a limited company (whatever suits you best from the standpoint of tax etc.). We can help with your VAT returns too, of course.
In fact, at Taxfile, we can help you with anything from simple bookkeeping, tax returns, refunds and VAT to Capital Gains Tax, Corporation Tax, PAYE and full limited company business accounts. We have South London offices in Tulse Hill and Dulwich as well as in Topsham near Exeter, Devon. Call 0208 761 8000 or book a free, no-obligation initial appointment with one of our tax advisers and we’ll be happy to discuss any tax-related issues or requirements that you might have.