Following a consultation in 2021, the government has now published draft regulations to implement the OECD's Model Reporting Rules for Digital Platforms (model rules) and is seeking technical feedback until 13 December 2022.
The new rules will require digital platform operators to collect, verify and report details of sellers on their platform to HMRC and to provide a copy of the reported information to the sellers. HMRC will then exchange the information with other tax authorities (pursuant to a multilateral agreement signed on 9 November 2022 with 22 other jurisdictions) and will use it to detect and tackle any non-compliance by sellers. The rules will apply from 1 January 2024, with the first reports due by 31 January 2025.
The draft regulations set out further details of the actions that digital platforms will be required to take to comply with the rules, and the penalties (and appeals process) for non-compliance.
Actions required by digital platforms
Broadly, a reporting platform operator must:
- establish and maintain procedures to collect and verify information about sellers (including property listings, where applicable)
- apply the due diligence procedures set out in the model rules
- keep a record of all compliance steps taken, and information collected, for a period of five years from the end of the reportable period to which they relate
- notify HMRC that it is a reporting platform operator by no later than 31 January following the end of the first reportable period, and
- report to HMRC (via an electronic report system) the information required on or before 31 January following the end of the reportable period and provide a copy of the same to the sellers.
A platform operator is not required to make a report to HMRC where it reasonably believes that another platform operator will report the required information to HMRC or another tax authority.
An 'excluded platform operator' exemption also applies for operators whose entire business model is such that they do not allow sellers to profit from payments received or do not have any reportable sellers. In either case HMRC must be notified of this fact. Likewise, platform operators must give notice to HMRC if they elect to apply the due diligence procedures to 'active' sellers only.
Penalties for non-compliance
Unless HMRC is satisfied that there is a 'reasonable excuse' for a particular failure (which would not include an insufficiency of funds or relying on another person to do something), the following penalties apply:
- failing to make a report to, or comply with a request from, HMRC within the relevant deadlines - up to £5,000 plus a daily penalty of £600 if the failure continues
- failing to comply with record-keeping requirements - up to £5,000 for each reportable period
- failing to notify HMRC of being a reporting platform operator or an excluded platform operator - up to £1,000
- failing to apply due diligence procedures - up to £100 for each seller in respect of which the reporting platform operator fails to apply the procedures, and
- making an inaccurate or incomplete return to HMRC - up to £100 in respect of each reportable seller.
Penalties assessed under the regulations are due and payable within 30 days of the notice of assessment being issued by HMRC. The regulations also contain a right to appeal against penalty assessments and the appeals procedure.
Comment
Prior to the draft regulations being published, the government had indicated that responses to the initial consultation were supportive of its proposals although there was a range of views on some of the specific questions posed.
On the scope of the rules, most respondents supported the objective of minimising burdens on smaller and low risk platforms and suggested that there should be an exclusion for 'small' platforms that facilitate the provision of services for total payments of less than €1 million. However, there were also concerns that such exclusions might be exploited, create competitive disadvantages, or undermine the policy objectives of tackling evasion. On further consideration, the government concluded that the benefits of a relatively low threshold for excluding smaller platforms would not outweigh the increased burdens and uncertainty this would create, and so decided that it would not adopt the optional exclusion for 'small' platforms.
The draft regulations do however include an exclusion for platform operators whose entire business models are such that they do not allow sellers to derive a profit from payments received or do not have any reportable sellers. They also limit the scope of the rules where operators elect for due diligence procedures to relate to 'active' sellers only. These measures could still be helpful to reduce the increased burden for smaller and low risk platforms and align the UK rules with similar reporting rules being introduced in the EU (DAC 7).
HMRC has offered to meet with digital platforms to discuss technical concerns raised by the draft regulations and has promised to provide clear and comprehensive guidance on the new rules. Further detail is also awaited on the electronic report system that platforms will need to use.
Given that the final regulations do not come into force until 2024, digital platform operators should take this opportunity to review their due diligence procedures to ensure that they comply with their new obligations.
To discuss the issues raised in this article in more detail, please reach out to a member of our Tax team.
