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VAT issues for online platforms

Getting the VAT position right for online platforms can be complicated and needs to be considered carefully, not least because the position changes regularly.

Harriet Revington

Harriet Revington


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Online platforms tend to use a principal/agent model for VAT purposes. Usually the sellers on the platform will be the principals and the operator of the online platform will be acting as the agent.

The VAT treatment of the operator of the online platform will then depend on whether it is a disclosed or undisclosed agent. An undisclosed agent will act in their own name and customers will not normally know that they are dealing with an agent. With a disclosed agent the supply for VAT purposes is usually between the buyer and seller and the online platform just makes a supply of agency services to the seller. Conversely, under the undisclosed agent model, the operator of the online platform is treated as making the supply to the buyer for VAT purposes and is responsible for accounting for that VAT to HMRC. However, this should not change the commercial position where title of the goods passes from seller to buyer. Whether VAT is chargeable under disclosed or undisclosed agency models will also depend on the location of the sellers/operators of the online platforms and whether VAT registration thresholds have been reached.

For HMRC, agents can potentially result in a significant loss of VAT as they are normally only liable for VAT on their fee or commission, whereas the main parties to a transaction are liable for VAT on the value of the entire supply. This is particularly relevant where there is a disclosed agent structure and a seller of goods over the online platform is not based in the EU. Therefore, agents need to be careful that the agency relationship cannot be rebutted and that parties are acting in a way which suggests the agency relationship is correct (for example, in terms of who bears the financial risk of the transaction). Agency relationships also need to be considered carefully in the context of corporation tax, especially for sellers that are based in a different jurisdiction where a permanent establishment could arise as a result of the agent. Permanent establishment issues should also be considered by the operators of online marketplaces, in the context of where they operate.

VAT when supplying electronic services to consumers

Where electronically supplied services (for example, supplies of e-books or music online) are supplied over online platforms to consumers (ie individuals or businesses that are not registered for VAT) the VAT supply is treated as being made where the recipient belongs. This could result in an online platform becoming liable to account for VAT in many jurisdictions in the EU. To deal with this issue there is a mini one stop shop (MOSS), which allows a single registration for all EU-based supplies in one Member State and only one VAT return needs to be submitted in that Member State.

After Brexit if a UK business is currently registered for MOSS in the UK and it is making supplies to other EU Member States, it will need to register with a "non-union" scheme in another Member State. Other non-UK businesses that also use the scheme and are currently registered in the UK will also need to register in another EU Member State (another VAT registration in the UK may also be required).

Joint and several liability for online marketplaces

Since 2016, HMRC has been able to impose joint and several liability on operators of online marketplaces for VAT that should have been paid by sellers of goods operating on those marketplaces. Joint and several liability can be imposed where the operator knew or should have known that the seller should be registered for UK VAT. This requires the online marketplace to undertake reasonable due diligence checks, for example on the validity of the seller's VAT number or monitoring when the seller begins to offer goods for sale on the online marketplace.

If HMRC issues a joint and several liability notice, the operator usually then has 30 days to stop that seller from offering goods for sale to UK consumers on its marketplace. No further assessment will be made if it stops the seller from trading on its marketplace or if HMRC is now satisfied the seller is meeting its VAT obligations.

Recent and future changes for online platforms

Some simplifications were introduced from 1 January 2019 where intra-EU cross border supplies do not exceed a certain amount each year. If supplies are under €10,000, the VAT rules of the home country apply (which avoids the need for a MOSS registration). There may also be reduced VAT administrative obligations in relation to providing evidence of a consumer's location where cross border supplies are under €100,000 per year.

From 2021, an electronic marketplace that facilitates imports of goods with a value of up to €150 into the EU, or intra-EU sales of goods by non-EU traders, will become the deemed supplier for VAT purposes and therefore liable to charge and remit VAT on supply of goods on its platform. Where a platform is acting as an undisclosed agent this should not result in any difference to the VAT treatment, however this will be a substantial change for disclosed agents resulting in additional VAT administration and compliance obligations.

There are also proposals for the mini one stop shop to be extended to all sellers of goods to consumers (rather than just electronically supplied services). This would end the requirement of multiple VAT registrations and VAT returns for sellers of goods over online platforms.

Assuming the UK has left the EU by 2021, these changes will still be relevant for operators of online platforms, or sellers of goods over online platforms based outside the EU, if they are making supplies into the EU.

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