Wayne Neale of BDO: The government’s crackdown on VAT is clear – so don’t be caught out
PUBLISHED: 15:02 30 March 2018 | UPDATED: 15:14 30 March 2018
The government’s measures to crack down on non-payment of VAT should not catch businesses unaware, writes Wayne Neale, associate director at BDO.
Selling online is no different to selling on the high street – the VAT rules apply in full.
However, HMRC suspects that many businesses are avoiding paying VAT on their online sales and is considering a number of measures to stop them.
The government has issued a consultation on the possibility of imposing ‘split payment’ rules requiring online marketplaces to deduct VAT from payments they collect on behalf of sellers.
If implemented, this could see the marketplace pay the VAT on each sale over to HMRC and pay only the net amount to the seller.
This would be a straightforward process, but one that would damage the cashflow of the selling business as it would not be able to offset its input VAT at that time and, therefore, would have to reclaim the input VAT when submitting its VAT return. Monthly VAT returns may therefore become essential for all online traders.
Perhaps more interestingly, HMRC has called for evidence on how online marketplaces could ‘help’ sellers understand their tax obligations. This includes considering whether online platforms create opportunities for tax evasion and what data online platforms hold on their users.
If trading data was automatically reported to HMRC, the number of VAT investigations could mushroom.
A recent example of how the government uses new rules in this area is that, since March 15 2018, online marketplaces can be held liable for the VAT due on UK sales made by overseas businesses if they haven’t registered for UK VAT.
Similar rules already exist in other countries so any business that makes overseas sales online should check the local VAT rules – it may have to register and pay VAT in those countries.
Another recent consultation examines cash and electronic payments. The government wants as many payments as possible to be electronic so that they can be tracked for tax purposes. HMRC estimates that it loses tax of £8.7bn a year through tax evasion and the ‘hidden economy’ – often facilitated by cash transactions.
With Making Tax Digital for VAT on the horizon, the direction of travel is clear: the government is driving all businesses to comply with online reporting of VAT and is building the tools to enforce it. Businesses that don’t invest the time now to get their VAT systems right could face investigations and costly disputes with HMRC.
• Wayne Neale is an associate director at BDO.
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