HMRC to issue VAT Assessments to overseas businesses trading on online marketplaces

With effect September 2022, HM Revenue and Customs (HMRC), the UK tax authority, will change the way it carries out historic UK VAT assessments for overseas online marketplace traders. Instead of the current process, whereby information requests are sent out by businesses, HMRC will send VAT assessments where information indicates that the UK VAT returns up to December 31, 2020 are inaccurate. 

HMRC’S rationale for this change in approach is that it believes that where they hold the right information (e.g. obtained from marketplaces), and there is no need to require traders to send in the same data. The assessments will be sent to the business’s registered address in the UK, which may be their agent’s address. 

These assessments issued by HMRC will cover VAT returns for periods up until December 2020 i.e. in the period before online marketplaces were made responsible for collecting and accounting for the VAT on sales they facilitated for overseas suppliers. In addition, prior to January 1, 2021, covering EU businesses selling goods to British consumers that may have exceeded the UK’s distance selling threshold.

The assessments will be subject to standard statutory review and appeals rights, and will also tell businesses what to do if they think that the information held by HMRC is wrong, or if they want to provide more information.

HMRC has confirmed that extensions will be possible for businesses who are struggling to make payment deadlines. However, if they do not pay their assessment or arrange a time-to-pay agreement, HMRC will issue a Joint and Several liability notice to the hosts of the online platform they trade from. The marketplace will then decide what it thinks is necessary to protect itself from being pursued by HMRC for the overseas trader’s VAT debts. This may include withdrawing permission for them to sell on its website. Where this happens, the trader will not be able to trade on the marketplace until HMRC withdraws the notice. It could then take up to six weeks for hosts to allow a trader to use their platform again. 

The change in approach is indicative of the closer working relationship between marketplaces and tax authorities, including the sharing of sales data and being jointly severally liable for VAT errors made by marketplace sellers. It is also clearly demonstrates the need for all businesses to have accurate VAT calculation at the point of sale and for VAT returns to be prepared correctly, accurately and on a timely basis.

Please contact Avalara’s VAT specialists if you’d like to discuss Avalara’s range of solutions to assist with UK, European and Global VAT compliance, including VAT registration, VAT calculation and VAT return preparation and submission.