Split payment would see VAT extracted from online payments for goods in real time and deposited directly to the tax authority, cutting out the opportunity for non-compliance from overseas sellers. The government has also recognised split payment as a model which could be used in the future to transform the way VAT is collected more widely.
HMRC has identified options for payment technology which could potentially be used to extract VAT in order for a split payment model to be put in place. It’s also carrying out research with UK consumers to find out as much as possible about the challenges split payment might create within the online retail sector. The research will then be extended to include both UK and overseas sellers to inform the process of developing the model, whilst continuing to engage with the payment sector and marketplace through workshop-style collaborations planned for the beginning of this year.
In addition to the split payment model, the government is also legislating to extend the joint and several liability of online marketplaces for VAT not paid by traders, so that it includes not just overseas traders but also those within the UK. If the marketplaces either knew or should have known that a business was not registered for UK VAT when it should have been, they will also be liable for the unpaid VAT.