Weekly VAT Update – 25 April 2017
Online trading and the avoidance of VAT
Last Wednesday, The National Audit Office published the findings from its investigation into whether online sellers based outside the EU are charging VAT on their goods located in the UK when sold to UK customers. It found that “online sales accounted for 14.5% of all UK retail sales in 2016; just over half of these were non-store sales, mainly through online marketplaces, where buyers and sellers can meet and transact. VAT rules require that all traders based outside the EU selling goods online to customers in the UK should charge VAT, if their goods are already in the UK at the point of sale. In these cases, sellers should pay import VAT and customs duties when the goods are imported, based on their value, and charge their customers VAT on the final sale price. The sellers should also be registered with HM Revenue & Customs (HMRC), and are required to submit regular VAT returns”.
HMRC estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue in 2015-16 – but this estimate is subject to a high level of uncertainty. It represents between 8% and 12% of the total VAT tax gap of £12.2 billion in 2015-16. UK trader groups believe the problem is widespread, and that some of the biggest online sellers of particular products, such as mobile phone accessories, are not charging VAT. To date, there have been no prosecutions for online VAT fraud, but HMRC has carried out many civil operations against suspected evaders. These include 279 investigations of businesses and 373 compliance interventions in 2016-17. Consequently, HMRC has decided to focus enforcement actions against online VAT fraud inland, rather than at the border.
Draft Legislation to remove the Use and Enjoyment Provisions for B2C supplies of telecommunication services
In the Budget, the Chancellor announced that there would be an end to use and enjoyment provisions on supplies of telecommunications to non-business persons, and the draft legislation has now been published. At the present time, a supply by a UK telecommunications company to a UK individual would not be subject to UK VAT when the customer used their phone in, say, Canada because the supply is treated as taking place where it is used and enjoyed i.e. Canada. The new legislation changes this so that VAT will be charged by virtue of the consumer being a UK customer, regardless of where they use/enjoy the telecommunication service.
Associated Newspapers – HMRC intend to Appeal
In February, the Court of Appeal made its judgement in a case concerning the VAT treatment of vouchers under two different promotion schemes. The vouchers were for use in buying the Daily Mail or Mail on Sunday and were usual high street gift vouchers. The taxpayer bought vouchers directly from retailers, as well as from an intermediary. The Court found that no output tax is due when vouchers are given away, but that input VAT is not recoverable on the purchase of vouchers direct from retailers. This judgement undermined HMRC’s guidance and HMRC has announced its intention to appeal it to the Supreme Court.