January 12, 2021
Effective from the 1st January 2021, online marketplaces now have to account for the VAT paid on products, sold to UK consumers, on their platforms by third-party sellers. The online platforms are now required to deduct the 20% tax at source.
HMRC made the change amid growing concern that thousands of mainly Chinese sellers were evading the tax by using shell companies and fake VAT numbers to sell products in effect tax-free.
Over recent years, the UK Parliaments Public Accounts Committee (PAC) has been critical of HMRC’s response to the online VAT fraud problem costing UK taxpayers more than £1 billion ($1.35 billion/ €1.12 billion) a year. They also criticised Amazon and eBay, and their smaller rivals had continued to “profit from people who are defrauding the British taxpayer” while failing to address the issue of VAT fraud adequately.
In the main, such fraud occurs when traders based outside the UK fail to charge VAT on goods and services sold in the UK via online marketplaces.
For now, UK based businesses supplying UK consumers will see some non-UK competition disappear as 20% tax is deducted.
All change across the EU from 1st July.
Then it gets tougher again from the 1st July 2021 when all non-EU Businesses that sell to EU-based consumers and will see UK businesses having to follow the same rules as companies in the U.S. and elsewhere.
- The changes apply to businesses that sell more than €10,000 ($12,200/ £9,000) of goods annually to EU consumers.
- The EU will abolish the exemption for goods under €18 ($22/ £16) resulting in all goods having VAT charged from 1st July.
- Non-EU retailers will have to register for VAT in just one EU country, not all 27. If you have a physical presence, such as an office or warehouse, in other EU countries you will also need to register there.
- Orders under €150 ($182/ £135), the charge can be levied by customs or the postal couriers and not collected by the retailer at the point of sale. The downside is that a surcharge is applied to either the retailer as the sender of the goods or the customer as recipient.
- The amount of VAT depends on the applicable VAT rate in the destination country. It follows that there are 27 EU countries, so there are 27 different VAT rates. Add to that further complication that goods eligible for VAT do vary country to country.
Once registered, merchants must file a tax return detailing the sales and VAT due for each country. The payment must accompany the return. The EU will establish a universal system to file returns for all countries where a company is not registered. A separate return is required for registered countries.
Editorial Opinion: If you run your own e-commerce site getting the pricing and correct classification of goods, so the correct VAT rate is assigned will be “challenging” to say the least and mean you will need a VAT expert on hand.
The likely result is that It helps local merchants over foreign competitors, but consumers could end up paying more. Retailers who have focused on providing better service at competitive prices are likely to see profits eroded with new administration and taxes and driving them to use the online marketplaces such as Amazon and eBay, who can manage the VAT and in doing so, increase their dominant market position.
Categories : World Focus