UK Chancellor Rachel Reeves is facing pressure to find ways to raise new revenue streams when she presents the budget on Nov. 26. Amazon.com Inc.’s recent offer to take on more deemed reseller responsibilities could spur the generation of significant funds.
The past decade has seen incredible growth for e-commerce sales made via marketplaces. Amazon, Temu, Rakuten, and Alibaba are just a few of the big players doing this, though many smaller operations also exist.
Tax authorities in many countries have noticed this and in many countries these marketplaces have been asked to take on extra responsibilities for collecting value-added tax.
In the UK, marketplaces need to account for UK VAT instead of the seller if the sale takes place via the platform and:
- Goods arrive from outside the UK in consignments valued at less than £135 ($177), or
- Goods are delivered domestically in the UK by non-established businesses
This means that the marketplace always accounts for the VAT unless it’s a domestic UK sale by a locally established business or an import above £135.
Amazon’s Letter
Since 2021, Amazon has accounted for £6 billion of VAT to the UK tax authority, HM Revenue & Customs, because of these deemed reseller rules. This is great for the UK because it’s receiving a lot of tax revenue from a single taxpayer, which makes it efficient.
Similar rules exist in many other countries, and we might assume those tax authorities are also benefiting.
However, Amazon makes clear that significant levels of VAT evasion exist where businesses are claiming to be established in the UK, and hence responsible for VAT collection, but aren’t passing that to HMRC. Anti-avoidance rules compel marketplaces to make rigorous checks on the status of their sellers because if they don’t, HMRC can pursue them for unpaid VAT.
Despite Amazon employing an army of tax specialists and utilizing technology, it believes that up to £700 million of VAT is lost each year to this fraud. This happens because confirming the establishment of a business for VAT purposes is difficult—especially in the UK, where the incorporation of “brass plaque” businesses via Companies House has been all too easy.
This is why in its letter Amazon asked the UK government to make it responsible for the VAT due on all domestic sales, not just those made by non-established businesses.
Why This Matters
When deemed reseller rules were first imposed, marketplaces were reluctant to adopt them. These rules are more widely accepted now, and bigger platforms have recruited appropriately to manage it.
This approach makes life easier for tax authorities. But it might not relieve sellers of the need to be UK VAT registered because they likely still will have to recover import or local UK VAT.
With Amazon accounting for the VAT, that would mean little or no UK VAT on sales for the sellers (unless they also sell via their own website, sell imported goods over £135, or make business-to-business sales) and hence they will become repayment traders, where they always expect a refund of VAT from HMRC.
Businesses in this position will need to understand the cash flow impact. Moving to monthly returns could help this, as businesses will receive repayment of VAT incurred more quickly from HMRC. They will also need to consider how best to manage data and ensure the right amount of VAT is accounted for, and the VAT return completed correctly will be required if sales are made via more than one medium.
Key Takeaways
If Amazon’s offer isn’t initially accepted by HMRC, that position may change quickly. The extra tax revenue generated for minimal change would be significant.
This is also why we are seeing rumors about the £135 threshold for imports being abolished and sellers being asked to account for customs duty on them. Businesses using platforms would face some extra burdens. But in the bigger picture, it seems like a no-lose scenario for the UK government that all platform users should understand in more detail.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Rob Janering is partner, VAT, customs and international trade with Crowe UK.
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