Tax rules were introduced from 2016 to hold online marketplaces liable for VAT unpaid by overseas retailers. The powers, which came into force in September 2016, were aimed at addressing the unfair advantage overseas retailers had over UK-based retailers by not charging VAT on internet sales. HMRC estimated the cost to the Treasury to be around GBP1bn (USD1.25bn) a year, with many of the non-compliant overseas retailers said to be based in China.
Under those rules, HMRC can force overseas retailers to appoint a UK-based VAT representative or provide a financial guarantee. If the overseas retailer fails to comply, the online marketplace they use to sell their goods could be held liable. Meanwhile, warehouses that distribute goods from overseas retailers need to join a due diligence scheme by 2018 or face penalties.
In 2016, HMRC saw a ten-fold increase in VAT registration applications from internet retailers as a result of the change.
Then, in the 2017 Autumn Budget, the UK decided to bolster the new regime by introducing joint and several liability for online marketplaces and introducing a new obligation requiring sellers to display their VAT numbers online.
