HMRC have commenced the outsourced development of a proof of concept for a new split payment system which could see the VAT element of online sales being paid directly to HMRC.

The idea behind introducing a new system is that it will allow a payment to be split into its constituent parts when received, one of which would be VAT. Ideally, a payment could then be directly paid to different recipients, such as HMRC with respect to the VAT element.

The project is split into several phases and follows a 2018 Consultation in which respondents pointed out that:

  • Whilst technologically possible, it would be complex to split payments and ensure compliance with the VAT rules.
  • Cashflow and cost were important issues for SMEs.
  • In order for it to work, the system adopted would need to be simple to both develop and comply with.

Following the consultation an industry working group was set up to look at how the proposed system might work which presumably explains why it has taken five years to get to this current stage in the project.

Phase 1 of the project is scheduled for completion by 31 May 2024 with the final phase due by 31 January 2025. Given this timeline and the potential impact on a significant number of businesses, it is to be hoped that no changes will actually be introduced until after the introduction of Making Tax Digital for Income Tax and Corporation Tax (currently scheduled for April 2026 and April 2027) is complete.

Useful guides on this topic

Online Marketplaces: selling goods in the UK
When do you have to register for UK VAT? When is UK VAT payable? What amount is VAT payable on? What information do you have to give the marketplace provider? What will it do with that information?

Online Marketplaces: joint and several liability
Online marketplaces can be held jointly and severally liable for the VAT of an overseas business that is not established in the UK and which sells goods in the UK via their website. What do online marketplaces need to do?

Place of supply: goods
The place of supply (POS) of goods determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

External link

HMRC: VAT Split Payments Proof of Concept

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