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Consultation outcome of split payment mechanism to combat online VAT fraud

Elizabeth Wilson 20 November 2018 No comments

HM Treasury and HMRC have published the outcome of their consultation on an “Alternative method of VAT collection – split payment” concerning potential changes to the collection of VAT on online sales of goods.

The consultation

The consultation had sought views on possible options for a split payment mechanism that would allow VAT to be split from online payments in real time, and transferred directly to HMRC (see our June blog article for further details).

By intercepting VAT through intermediaries in the payment cycle, split payment potentially offers an effective means of enforcing VAT compliance on sellers based outside the UK that fail to charge VAT on sales of goods to online UK consumers.

During the consultation, HMRC and HM Treasury officials received written responses and met with numerous stakeholders.

The outcome

The “summary of responses”, published in November, sets out the feedback received and the government’s full response to the consultation.

The key points of note in the government’s response include:

  • an acknowledgment of the complexities and costs involved in splitting a payment under current UK VAT rules;
  • an assertion that the government is still of the belief that a split payment model would reduce the VAT gap from cross-border e-commerce;
  • a decision to create an Industry Working Group to further discuss, refine and explore an operable split payment model;
  • the intention to engage financial regulators, such as the Bank of England and the Financial Conduct Authority, to explore how existing and planned reforms to regulations might be harnessed to create an enforcement environment conducive to split payment in the long-term.

Next steps

HMRC will set up the new Industry Working Group to take the split payment proposal forward.

The objectives of this group will be to:

  • develop customer journeys mapping out how split payment could work in different scenarios, including for new and evolving payment types;
  • identify opportunities to test the concept;
  • explore short and medium-term measures that would facilitate longer-term implementation of a split payment system, such as how data can be used to perform the split;
  • develop a roadmap for how split payment could be implemented; and,
  • ascertain options for enforcement.

HMRC will be contacting businesses in due course that have already indicated they would like to be part of a working group.

Other organisations that may have relevant expertise, such as financial services solution architects or payments industry experts, are invited to contact by the 5th December 2018.

Businesses likely to be impacted by the introduction of a split payment mechanism in the UK should monitor future developments on the issue.