In an effort to crack down on foreign sellers that try to avoid paying value-added tax (VAT) by abusing loopholes, the UK is set to force online marketplaces to collect taxes from the sellers operating on their platforms.
This should level the playing field between foreign and domestic sellers in the UK, but because these marketplaces are likely to absorb these costs and offset them by raising fees for sellers, which may then raise prices to compensate, the move may lead to some products being more expensive for UK buyers.
The UK is Planning to Make Marketplaces Responsible for Collecting Taxes
The UK has a plan to make online marketplaces, such as Amazon, Temu, eBay, and others, responsible for collecting taxes owed by sellers on their platforms. This measure is expected to raise up to £1 billion, with some of these funds going to cutting business rates for physical stores in the UK.
Finance Minister John Healey is expected to announce it as part of a crackdown on foreign sellers that use loopholes to avoid paying VAT.
For example, foreign sellers may use strategies like setting up shell companies, undervaluing the goods coming into the UK, failing to register for UK VAT, and other loopholes to avoid paying their fair share of VAT.
Local and traditional British retailers have long been calling for the UK to do more to combat the overseas online sellers that get an unfair advantage by taking advantage of loopholes like these.
Online marketplaces will be required to collect VAT at the source for business sellers that have an annual turnover of over £90,000, meaning smaller sellers won’t be impacted by this change.
However, some want the UK to take a firmer stance. For example, Dan Neidle, the founder of Tax Policy Associates, said that “This is a step in the right direction but the Treasury needs to go further and make online marketplaces responsible for collecting every penny of VAT on the sales made on their platform.”
What This Means for Marketplaces
This is a major shift for these online marketplaces, and will force them to make some administration and compliance-related changes. For example, they’ll now have to keep closer tabs on seller revenue, so they know when a company passes that £90,000 threshold where they need to start collecting VAT from them.
Marketplaces must also be able to automatically calculate and withhold the VAT at the checkout, before they release net revenues to the seller’s account. They’ll also now be responsible for transferring these collected taxes directly to the correct authorities, rather than sellers handling it themselves.
But despite the extra work and costs that come with this increased responsibility, online marketplaces seem to be in support of this measure, as both eBay and Amazon have said they support and welcome the change.
Our Take
Aiming to Create a Level Playing Field in British Retail
As the UK is among the most popular destinations for cheap ecommerce imports, it makes sense that it’s taking steps to create a fairer environment for local and traditional retailers. The move seeks to make it harder for importers to dodge taxes, and ensure that all sellers, both foreign and domestic, are paying what they owe.
However, while this change should make the playing field more level for British sellers, marketplaces will likely absorb the added costs and operational burden of collecting these taxes. This may lead to marketplaces passing them on to sellers, who will then pass them on to customers, which could lead to some items being more expensive for UK buyers.
