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Alternative method of VAT collection – split payment – Spring Statement 2018

In relatively recent years, the expansion of e-commerce has posed a significant challenge to the UK VAT system. Certain businesses fail to charge VAT when they are supposed to on sales of goods to UK consumers. This non-compliance not only deprives the Exchequer of monies needed to fund public services (estimated at £1-1.5 billion in 2015-16), but also undercuts the honest majority of businesses. Whilst the Government has already taken action to address this issue (for example, introduction of the joint and several liability rules to hold online marketplaces responsible for the unpaid VAT of sellers on their platforms), it now wishes to go further in combatting online VAT fraud by harnessing new technology and exploring the possibility of introducing a new method of VAT collection.

The consultation document entitled Alternative method of VAT collection – split payment examines potential for utilising payments industry technology to collect VAT on online sales and transfer it directly to HMRC. HMRC believe this would significantly reduce the challenge of enforcing online seller compliance and offer a simplification for businesses. It sets out how the potential mechanism could work, how the system could be enforced, and considers a number of options for how the VAT could be accounted for.

The consultation will run until 29 June 2018.

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