HMRC have published ‘Alternative method of VAT collection – split payment: summary of responses’, and have indicated they will continue to work towards a viable alternative VAT collection model for online shopping.

The Consultation set out some suggested mechanisms for how a spilt payment VAT collection method could work for Online shopping and who should be liable for accounting for the VAT.

The suggestions included:

  • The Merchant Acquirer (MA) should deal with the split of VAT from gross income.
  • Where the MA is on an approved HMRC list the card issuer would make full payment to the MA who would split the payment into VAT and net, ensuring the VAT is paid to HMRC.
  • Where the MA is not on the approved list, the card issuer would be responsible for the split and accounting for HMRC for the VAT.
  • The VAT payable could be calculated using one of HMRC’s suggestions:
    • Treat all as standard rated and then the supplier adjusts accordingly on a VAT Return.
    • Use a mandatory flat rate scheme which applies a new flat rate.
    • Apply a net effective rate based on the previous year’s VAT returns, adjusting accordingly through current year returns.

Respondents to the consultation commented that:

  • It would be technologically possible to implement a split payment system.
  • It would be complex to ensure splitting a payment as well as compliance with the VAT rules.
  • It has to be a simple system for businesses.
  • A common EU wide approach would be preferable as a UK only approach may affect competitiveness.
  • The impact on the cashflow for smaller businesses should not be overlooked.

The government still believe that a split payment method is a potential long-term solution for combating VAT fraud and reducing the VAT gap. It has been accepted that it will take time for it to be developed and implemented successfully.

An industry working group will look into how the system can work including:

  • Reviewing how it would work with different scenarios, including new and evolving payment types.
  • Identifying pilot opportunities.
  • Exploring short and medium term measures which will facilitate the longer term goal of a split payment method, such as how to collect the data for splitting.
  • Developing a road map for implementation.
  • Looking at the best options.

Anyone wanting to join the group have been invited to contact This email address is being protected from spambots. You need JavaScript enabled to view it. by 5 December 2018.

Links

Online Marketplaces: selling goods in the UK

Online Marketplaces: joint and several liability

International goods

Place of supply: goods

Alternative methods of collecting VAT: a consultation

External link

Alternative method of VAT collection – split payment: summary of responses

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