Amazon Sellers – Stay in control of your VAT compliance!
Gareth Bevan 13 January 2017 No comments
With the boom in online selling set to continue, the heat is being turned up on those sellers using online marketplaces who are not complying with their VAT obligations. In a move to simplify VAT compliance, Amazon are currently piloting a new service which avoids the need for sellers to deal with overseas VAT on cross-border sales.
However, sellers should not feel beholden to Amazon. As I highlight below, there are other options when it comes to staying in control and on top of your VAT compliance without giving away your margin to Amazon.
The Crack Down on lost VAT
Online sales in the EU are currently worth €550 billion a year – €96 billion of which is cross-border. Data suggests this is set to increase in the coming years. It is currently estimated that €5 billion of VAT is lost on online sales within the EU every year and this is expected to reach €7 billion by 2020. Therefore, it is not surprising that the European Commission and tax authorities want to crack down on those sellers that avoid paying the VAT due on online sales.
In the last UK Budget, HMRC were given new powers to tackle overseas online sellers that do not pay UK VAT due on sales to UK customers. Under these new measures HMRC can ultimately hold the online marketplace joint and severally liable for the VAT from sellers who refuse to comply. Further information on the measures can be found in an earlier blog post. It will be interesting to see whether tax authorities in other countries take similar steps in future.
Similarly, UK online sellers are liable to overseas VAT on cross-border sales (once a threshold has been exceeded). It can be a daunting prospect having to deal directly with overseas tax authorities in order to register for VAT and deal with the ongoing VAT compliance. Amazon claims that under its current pilot scheme the seller can avoid having to deal with overseas VAT obligations by selling the item to Amazon in the first instance. Amazon then makes the sale to the end customer thus dealing with any associated VAT requirements. Whilst this may be an appealing option for many sellers, Amazon will presumably recoup the cost of this from sellers in some way, most likely by eating into their margins.
The Alternative Option
Sellers who are only likely to require registration in a small number of countries may, therefore, prefer to continue to deal with the VAT compliance themselves. Alternatively, sellers could seek the assistance of a specialist VAT firm to help with their overseas compliance obligations. This could be a cheaper long term option too since compliance for sellers on cross-border transactions is set to get much simpler.
The European Commission has already announced plans to introduce a One Stop Shop (OSS) online VAT portal for goods. Under this regime, sellers will be able to include overseas VAT due on all cross-border sales within the EU on a single VAT return and only ever have to deal with their home country tax authority. This should significantly reduce the administrative burden and compliance costs for online sellers from 2021. Further details of the Commission’s plans are available here and in our earlier blog article.
Online sellers should carefully consider their options for dealing with VAT compliance. For many it may be both commercially and administratively better to stay in control of cross-border sales, thereby enjoying higher margins and the benefit of future simplified VAT compliance arrangements.