E-commerce giant eBay has started charging 20% Value-Added Tax (VAT) on their fees to tens of thousands of businesses trading in the UK in line with HMRC’s continued tougher stance against online traders.
The measure, effective from 1st August, follows a restructuring by eBay resulting in UK customers no longer contracting with eBay Europe S.a.r.l (its Luxembourg entity) but with eBay (UK) Limited.
Alan Pearce, VAT partner at Blick Rothenberg, said: “This change should not adversely affect the vast majority of VAT registered sellers as the additional VAT being charged by eBay should be recoverable via the seller’s VAT returns.
“However, non-VAT registered businesses (i.e. those legitimately trading under the current £85,000 taxable turnover threshold) and those registered under the flat rate scheme will have to suffer the extra VAT going forward. Those who choose to register voluntarily will also have the benefit of being able to claim back the VAT paid on fees.”
He added: “In the past, many unregistered sellers gave false VAT numbers or simply used somebody else’s VAT number to avoid eBay charging VAT. This illegal practice will now cease as VAT will be charged to all UK sellers (registered or unregistered) and only those genuinely registered will be able to recover the VAT.
“Private individuals who sell on eBay should not be affected by this change as they should already have been paying VAT on fees in the past and will continue to do so in the future.”
This change by eBay follows on from last year’s package of measures introduced by the Chancellor aimed at tackling the rapidly growing VAT evasion by overseas traders that sell goods in the UK via online marketplaces such as eBay, Amazon and others. As a result, HMRC was given the power to force online marketplaces to ensure that their overseas customers were registered and accounting for VAT or risk being liable for the VAT themselves.
Pearce said: “Using these new powers HMRC are aiming to ensure that overseas retailers either register for VAT in the UK, appoint a UK-established VAT representative or provide a financial guarantee to HMRC. Interestingly, the guidance covering this issue on HMRC’s website is available in English and Chinese.”
If the overseas retailer does not comply with the above requirements, HMRC will issue a direction to the online marketplace notifying that it will be jointly liable for the VAT on future sales made by that overseas retailer if it is allowed to continue using the online marketplace.
The direction will normally provide a period of 30 days for the online marketplace to either ensure the overseas retailer becomes VAT registered, obtain funds from the overseas retailer to meet any future VAT liability or remove the overseas retailer from its marketplace so that it can no longer transact sales in the UK. If the retailer fails to take any action within this 30-day notice period then the online marketplace will automatically be liable for the VAT.
Pearce added: “So far, according to HMRC, over 7,000 new ‘internet traders’ applied for VAT registration in 2016, compared with just 700 in the previous year, suggesting that the new powers are having a significant effect. It is expected that these new measures will secure a much-needed additional £875m of VAT revenue by 2021.”
For more information please contact Alan Pearce.