HMRC’s drive to collect VAT from non-EU businesses

By Jaspal Dhillon, Senior VAT Manager
020 7490 7766

HMRC is currently focusing on businesses that are located outside of the European Union, but selling goods in to the UK via the internet whilst not accounting for UK VAT.  

It should be noted that the VAT registration threshold does not apply to a ‘non established taxable person’. So selling goods with a value of just £1 will require a VAT registration and for VAT to be accounted for, where the seller is not established in the UK. HMRC estimates that the missing VAT cost to exchequer is c.£1.5 billion per year.

By way of example, an overseas seller of sunglasses, sells its product via an online market place. Either the product comes into the UK under HMRC’s radar or, if caught, the sunglasses enter the UK with VAT and duty payable to HMRC at the time of import. Both VAT and duty in this example (if the goods are caught at the EU border), are an irrecoverable cost. The duty levy will always be irrecoverable, but further to this, as the seller is not VAT registered, so is the VAT.

In an alternative scenario, the sunglasses are sourced in the UK, with VAT charged (if applicable - the seller may not be VAT registered) and the goods are stored in a fulfillment house before being sent to the customer when needed (made to order). The sunglasses can also be stored in the fulfillment house if they have entered the UK via a non EU country, awaiting an online order from a customer.

However the supply chain is constructed, in the above examples, UK VAT is not being accounted for when the sunglasses are supplied to the end customer, because the overseas seller has not registered for and is not charging UK VAT to the end customer.

In order to tackle this, HMRC has announced a series of measures it is looking to implement imminently. As always, innocent parties in the supply chain may be caught by the changes.

Under the new drive to collect VAT, the following will apply:

  • HMRC will have the power to direct an overseas seller to appoint a UK-based VAT representative. This representative will be jointly liable for the VAT debts of non-compliant overseas sellers.
  • The online marketplace can also be held to be jointly liable for the overseas sellers’ VAT debt.
  • There will be a new due diligence scheme for fulfillment houses, where they will need to register with HMRC. HMRC will then expect the fulfillment house to carry out checks and impose record keeping requirements upon them. 
  • HMRC has also spoke about collecting VAT at source and is considering alternative methods of collecting VAT such as a new VAT collection mechanism for online sales. This would use technology to allow VAT to be paid directly from transactions at the point of purchase.

In light of this new drive to collect VAT, we urge our clients to review their supply chains to see if they might be caught by any of these new measures. We have recently recruited VAT specialist, Jas Dhillon to our tax team. He has many years of experience, having previously worked in the big 4 after starting his career with HMRC (many years ago) as a VAT Inspector. Jas’s broad range of experience in VAT means he has worked with clients of various size, operating in a wide range of industries. In particular he enjoys advising on VAT issues surrounding real estate and the international supply of goods and services. He is a chartered tax adviser and a member of the VAT Practioners Group.

If you would like to discuss any VAT issues, please speak to your contact partner or directly to Jas Dhillon, 020 7490 7766.

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