November 29, 2022

Volume XII, Number 333


November 28, 2022

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Online Marketplaces – Joint And Several Liabilities For VAT

Online marketplace operators should ensure compliance with UK rules that may cause them to be jointly and severally liable for UK value added tax on sales made by foreign traders on their marketplace.


In light of recent enforcement efforts by HM Revenue and Customs (HMRC), operators of online marketplaces may wish to review their compliance with UK value added tax (VAT) rules that may cause them to be jointly and severally liable for UK VAT on sales made by foreign traders on their marketplace. Significantly, there is no minimum VAT turnover threshold for overseas traders. Private individuals making occasional or one-off sales do not need to register, but businesses generally must do so even if their UK sales are minimal.

Sales of goods to UK consumers are subject to UK VAT, and non-UK traders may be obliged to register for and charge VAT on supplies, either under the “distance selling” rules if the trade is being made from another EU Member State, or as an overseas trader. Sales by non-UK traders into the United Kingdom have grown significantly in recent years, raising concerns that many such traders are not complying with their VAT obligations and that HMRC cannot easily compel them to do so.

Legislation in recent years has created important measures to incentivise marketplace operators to force vendors to comply with UK VAT rules. As of 15 September 2016, HMRC was authorised to serve notice on the operators of an online marketplace if a non-UK established person made taxable supplies through that marketplace and failed to comply with its obligations under the Value Added Tax Act 1994 (VATA). (See sections 77B to 77D of VATA). Notice from HMRC sets a period of time for the operator to ensure that the non-compliant trader no longer offers its goods for sale on the marketplace. Failure to comply renders the operator jointly and severally liable for the non-compliant trader’s VAT liability in respect of the sales. UK businesses were required to be in compliance with these rules as of 15 March 2018.

In addition, as of 15 March 2018, operators have been required to ensure that a seller either registers for VAT or ceases to sell over the marketplace, if the operator knows or should know that the seller is not registered for VAT. See section 77BA VATA. If the operator does not do so within 60 days of the date on which it first knew, or should have known, that the seller was not registered, it will become jointly and severally liable for the seller’s VAT. The operator is also obliged to check that the seller’s VAT number is valid and to publish it on the website within 10 days of receipt or, if later, the date on which the seller first offers goods over the marketplace.

Online marketplace operators therefore should institute due diligence processes to ensure compliance with these rules. HMRC suggests, in particular, that they should consider the following checks:

  • Whether the VAT registration number provided by the seller is valid (which can be checked via the Europa website)

  • Where the seller is located

  • Where the goods are located at the point of sale (which may be apparent from information provided by the seller in its sale advertisement, but the operator is expected to draw appropriate inferences where necessary, for example by considering the speed of delivery of the goods where appropriate)

  • Whether the seller has been removed from the website in the past

Operators should also monitor when the seller starts to offer goods for sale, how it fulfils orders and how quickly it is able to do so.

Separately, the Government is considering whether to introduce a split payment mechanism for online purchases, whereby payment intermediaries (normally the merchant acquirer) would be obliged to deduct VAT from the amount paid by the customer and account for it directly to HMRC before remitting the remainder to the trader. The Government has recognised that implementing such a mechanism will be technically complex, and it is as yet unclear when this might happen.

Enforcement of the joint and several liability rules is understood to have been stepped up over the last year. Operators of online marketplaces therefore need to implement a comprehensive VAT due diligence process on their third-party vendors, in order to identify which are based overseas and which are non-compliant. Due diligence should include HMRC’s recommended checks and additional monitoring of all third-party vendors, particularly those with short delivery times. Specifically, operators should be able to identify:

  • Whether a vendor is selling in the course of a business (rather than as a private individual)

  • Where the vendor is located

  • When a vendor has come within the scope of the rules (by selling to UK customers when it has not done so previously)

  • Whether the vendor operates under multiple names or aliases

  • Whether the vendor has a history of non-compliance

  • When a vendor has ceased to be compliant (for example, by deregistering for VAT)

© 2022 McDermott Will & EmeryNational Law Review, Volume IX, Number 221

About this Author

Christopher D. Saddock Counsel London Private Client & Wealth Management  Tax  Tax Structuring

Christopher D. Saddock focuses his practice on tax matters, with a keen focus on tax structuring for inbound investments, estate and related planning for high net worth individuals and families, compliance with the Foreign Account Tax Compliance (FATCA), OECD Common Reporting Standard (CRS), US pre-immigration tax planning for non-residents and utilization of international tax treaties in planning tax efficient structures.