On 15 November 2023, HM Revenue & Customs (HMRC) published new guidance within HMRC's International Exchange of Information Manual which deals with the implementation of the OECD’s model reporting rules for digital platforms in the UK. Please see our previous article on these rules and their implementation in the EU and UK, which can be found here.
The rules require UK digital platforms (within scope) to collect information as part of due diligence obligations to identify sellers engaged in Relevant Activities (expanded on in the guidance) on platforms. This is to then be reported to HMRC annually setting out the identification and transactional information in relation to these activities.
The implementing regulations apply from 1 January 2024, with most reporting due from January 2025.
Similar rules have been brought into force by EU Member States from 1 January 2023 (with the first reporting due in January 2024). Therefore, where relevant, UK-based digital platforms (Platforms) within the scope of the EU rules (known as DAC7) will need to ensure that they are aware of reporting obligations for 2023 as they are different to the UK dates. If you report under the UK rules then you shouldn't need to report in the EU too as there is relief from reporting obligations where a Member State can receive equivalent information from non-EU countries with similar requirements.
The guidance
When the rules were implemented, HMRC offered to meet with Platforms to discuss technical concerns raised by the draft regulations and promised to provide clear and comprehensive guidance on the new rules. Such guidance has now been published.
The guidance goes into significant detail, with particular attention given to explaining who is in-scope, the registration and notification requirements and the requisite due diligence that is expected to be undertaken by Platforms. We understand that HMRC is also seeking to understand the best ways to promote and explain these rules so that Platforms that are caught are compliant.
Capitalised terms reflect definitions used in the guidance.
Some key points to note
What are Platforms?
Platforms have been defined as websites or applications that facilitate transactions between Sellers and customers. The guidance explains that a Platform does not have to facilitate payments between a buyer and a Seller to meet the definition of Platform.
In summary, the guidance states that software will also qualify as a Platform if:
- it is accessible by users and allows Sellers to be connected to other users (customers),
- it facilitates the provision of goods or services by Sellers to their customers, and
- the amount of payment made to the Seller for the provision of goods or services is known or reasonably knowable by the Platform Operator.
It also explains that an integral element of the Platform definition is that registered, third party Sellers need to be connected to users via the Platform to complete the transaction.
The guidance confirms that the definition of Platform does not include software which exclusively allows the processing of payments in relation to Relevant Activities, listing or advertising in relation to Relevant Activities or redirecting and transferring of users to a Platform. It also confirms that a website, app or other software run by a business exclusively to sell its own goods or services (or those of another member of its group) is not a Platform because it does not connect third party Sellers to users.
Who is the Platform Operator?
There may be circumstances where a Seller uses a single Platform but there are multiple entities operating this, such as an entity providing the software, an entity processing payments and an entity onboarding Sellers. The guidance confirms the position in the OECD's Model Rules that it is the Platform Operator that contracts with the Seller to use the Platform that is responsible for the reporting obligations under these rules (ie the entity onboarding the Seller).
UK Reporting Platform Operators
One notable aspect of the UK rules, which is somewhat different from DAC7 and is explicitly confirmed in the guidance, is that non-UK platforms that have UK sellers or UK situated property are deemed not to be in-scope as a UK Reporting Platform Operator (it is only Platform Operators that are tax resident in the UK or incorporated in the UK or have their place of management in the UK). However, platforms operated by partnerships or similar legal arrangements will need to give careful thought as to their UK exposure for tax purposes as they may still be caught. Ultimately, this does mean that there are potentially significantly fewer platforms in-scope of reporting to HMRC than to EU tax authorities under DAC7. However, it is worth noting that if a non-EU/non-UK platform has sellers in the UK then it may also have sellers in an EU jurisdiction, in which case a DAC7 registration would be required in an EU Member State instead.
Relevant Activities and personal services
The guidance also provides examples of the activities that will be caught by the personal service limb of the rules such as transport services, delivery services and provision of labour services. The service must be 'at the request of the user' according to the rules and this implies that a personal service must be in some way personalised or adapted. However, the guidance confirms that the test is whether the service is capable of being personalised so that Platform Operators don't have to monitor the extent to which a service is modified or personalised in each case. It also states that a Platform Operator can assume that any time or task-based services qualify as a 'personal service'.
Sellers
The guidance confirms that the Seller for the purposes of reporting is the person who is registered on the Platform, even if that is not the same one who is providing the goods or services. The guidance uses the example of a property rental agency registered on behalf of owners who are renting out their properties. The Seller is the property rental agency rather than the owners. This is a welcome clarification and could reduce the number of Sellers that a Platform Operator needs to report on.
In terms of the Consideration that needs to be reported for Sellers, the guidance confirms that this also includes any tips, gratuities and incentives that are paid or credited to the Seller, but excludes any fees, commissions and taxes that are withheld or charged (these should be reported separately). The reported Consideration will be used by HMRC to check if the Seller has included the income on their tax return or if the income is taxable.
Due Diligence and verification
All Reporting Platform Operators have to carry out Due Diligence on the Sellers. This can be carried out by third parties, but the legal obligation (and therefore any penalty if it is not carried out correctly) sits with the Platform Operator. HMRC is anticipating that it will be easiest to collect the information at the onboarding stage and we would agree with this. Platform Operators should therefore check that their registration process is adequate and asks the right questions to get all the relevant information.
In terms of the information that is required, the guidance confirms that a Seller's tax identification number is normally their national insurance number for an individual and company registration number for a company. This will be easier to get from a company than a unique taxpayer reference. The guidance confirms that a VAT registration number is also not an acceptable substitute. If individual Sellers don’t have a national insurance number they will need to obtain one from HMRC to be registered on a Platform. If a Seller isn't resident in the UK their tax identification number will be the relevant identifier in the jurisdiction where they are resident. In terms of verifying a national insurance number it is acceptable to check that it follows the usual format; a Platform Operator doesn’t have to further verify that it is correct by collecting more documents if they are not already available.
HMRC's suggestion for where Sellers refuse to provide information to the Platform Operator is to encourage them to and explain that the Platform Operator is required by law to obtain the details. It also suggests taking steps to enable their systems to prevent uncooperative Sellers from proceeding with onboarding, or to limit access until all necessary information has been provided.
The guidance confirms that Reporting Platform Operators are not under a general obligation to obtain additional documentation beyond what they already collect. However, and particularly in cases of doubt, Reporting Platform Operators should seek additional documentation to assure themselves that the information collected is reliable. The guidance also provides ideas as to what Reporting Platform Operators might do when they have doubts about reliability, such as asking the Seller to re-confirm information provided or contacting the Seller to discuss the reasons for the doubt. Where Reporting Platform Operators cannot verify information to their satisfaction they may decide to suspend a Seller, but HMRC acknowledges this is not mandatory and different Reporting Platform Operators will have different risk appetites and will need to determine their own procedures and actions.
Online portal
HMRC has now also provided guidance on the electronic reporting system that Platforms are required to use. Platform Operators will need to be registered to the Platform Reporting Service (PRS) to report information to HMRC and will need to have made a notification that they are a Reporting Platform Operator. The PRS is an online portal that can be accessed via the gov.uk website and a Government Gateway account is needed to register on the PRS. This includes Excluded Platform Operators and Reporting Platform Operators that are relying on a reporting exemption, as well as those that will be making reports. All notifications must be made using the PRS.
HMRC has stated that reporting will follow the "XML schema" that has been developed and published by the OECD and which can be found on the OECD website. HMRC validation processes will ensure that submissions follow the schema rules (e.g. that mandatory fields have been completed, and that specified formats, e.g. for dates or numerical values, have been followed). In cases where the validation processes have failed, the user will be notified by the system so that the notifiers have the opportunity to correct any errors and then resubmit. HMRC is also exploring the possibility of providing an option for information to be entered manually into the service, however, details of this are not yet finalised and will be released in due course. If there is more than one Platform Operator in relation to a Platform and another Platform Operator reports the information (either to HMRC or to a Partner Jurisdiction under substantially similar rules) then the Platform Operator will need to notify HMRC that another Platform Operator has reported on their behalf. Agreements between Platform Operators should be properly documented so that the non-reporting Platform Operator can satisfy itself it can be exempted.
Alongside reporting to HMRC, Reporting Platform Operators must also provide a copy of the information to Sellers. Although Reporting Platform Operators don't need to separately post the information to each Seller, they do need to make sure the Sellers are aware of the information and that it is readily accessible.
Notable deadlines
The guidance explains that Platform Operators that are within scope of the rules will have to start carrying out the Due Diligence and other obligations specified in the regulations from 1 January 2024. The required information must be reported by 31 January following the end of the reporting period. This means that reports for the first Reportable Period of 1 January to 31 December 2024 will be due by 31 January 2025 for UK Platforms. Although there is a grace period of another year to provide information on Sellers who were already registered at the time the Platform Operator became a Reporting Platform Operator, this is to recognise that extra time might be needed to go back and collect information on those Sellers. The guidance contains examples on the date Platform Operators need to report by if there is any uncertainty.
HMRC has said that it will provide an updated list of participating jurisdictions (ie countries that HMRC will exchange information with) once finalised. When Partner Jurisdictions are confirmed, this will allow Platform Operators to consider whether they need to report the information in the UK if they have already reported the information elsewhere.
Next steps
In summary, the guidance provided is useful on the practical steps that in-scope Platform Operators need to take. Platform Operators should therefore put in place measures to enable them to efficiently collect and verify the required information so that when the rules come into force in January 2024 they are well-placed to comply with them.
To discuss the issues raised in this article in more detail, please reach out to a member of our Tax team.
