Alternative method of VAT collection

HMRC has published a summary of responses to the call for evidence that it launched in March 2017, asking for views on proposals for an alternative method of VAT collection and, in particular, how payment technology could be harnessed to extract VAT from online purchases from overseas sellers at the point of purchase.

In response to the comments received, the government remains of the view that a feasible split payment model for VAT, which would allow VAT to be extracted from online payments in real time, would help to reduce the VAT gap. Various issues and complexities associated with its implementation were highlighted, but most comments were broadly positive and support the view that split payment is feasible, although its implementation will present challenges.

Initially targeted at non-compliance by some overseas sellers trading through online marketplaces, it is also recognised that split payment has the potential to transform the collection of VAT more broadly in the future.

The responses received have helped identify potential options for a split payment model. HMRC is currently conducting user research with UK consumers in order to understand more deeply the context of use of online shopping channels and any potential changes there may be for UK consumers. It is intended that this research activity will be extended to both overseas and UK-based sellers in order to develop further insights to inform the model development process.

Running in parallel to the user research activity, HMRC will continue to develop and test these insights over the coming months through a process of internal evaluation and on-going engagement with the payment sector and marketplaces, most likely in the form of collaborative workshop-style sessions in early 2018 with those who have expressed an interest in participating. A full consultation is expected to follow later in 2018.