Your input is needed on initial positioning
Below is a summary of the emerging positions from yesterdays meeting where members of the Finance Community discussed the proposals to extend VAT liability for Online Marketplaces.
The slides from the meeting are accessible below.
For those unable to join the meeting, please do provide any additional feedback on the positioning or the questions on the final slide in the attachment, or anything else you would like to raise on the proposals in the consultation by 5pm Friday 31st July.
I will begin drafting a formal response w/c 3rd August and share that for review rounds before the deadline to submit of the 18th August.
Summary
• There was broad support for a simpler, more comprehensive regime that brings more marketplace sales into scope, rather than relying on multiple carve-outs, thresholds or differential treatments.
• Simplicity is essential for compliance, system design and reducing avoidance opportunities.
• A nil or very low minimum platform threshold was generally seen as preferable to a £90,000 threshold, provided that any support for genuinely small sellers is handled outside marketplace systems and does not create additional platform-level complexity.
• Gov needs to provide much greater clarity before implementation, particularly on mitigations for small sellers, VAT rate relief, invoicing responsibilities and due diligence expectations.
• Implementation should allow sufficient lead-in time for systems, product file reviews and operational changes, with a possible light-touch compliance period after go-live.
Detailed summary of discussion on key points
1. Minimum platform threshold
• Key position: Support for a nil threshold, or at least a significantly lower threshold than the VAT registration threshold, as the simplest and most effective approach.
• A £90,000 threshold was seen as open to avoidance, as sellers could potentially split sales across multiple platforms or accounts to remain below the threshold.
• There was concern that marketplace operators may otherwise be expected to monitor sellers' activity, linked accounts or true revenue, which was seen as impractical and burdensome.
• A nil threshold was viewed as reducing uncertainty, avoiding disputes with sellers and making systems easier to configure because all relevant marketplace sales could be treated consistently.
• Any mitigations for genuinely small sellers must not require marketplaces to apply different VAT treatments, reduced rates or complex seller-specific rules.
• Certainty was needed on how small-seller mitigations would work in practice, including whether sellers would need to reclaim VAT from HMRC or whether a reduced rate mechanism would apply.
2. Mitigations for small sellers
• Key position: Mitigations may be needed for genuinely small sellers, but they should be administered between sellers and HMRC rather than through marketplace systems.
• Concerns on how marketplaces could reliably distinguish genuinely small UK sellers from sellers repeatedly creating new accounts or entities to appear small.
• There was concern that applying reduced VAT rates or deemed input tax credits at marketplace level would reintroduce complexity and undermine the benefits of a nil threshold.
• One comparison was made with New Zealand-style GST treatment, where a platform applies a reduced effective rate for non-registered sellers, but participants were sceptical about whether such an approach would be workable in the UK context.
• Agreement that further government clarity is needed on the design, administration and risk allocation of any mitigation mechanism.
3. B2B supplies
• Key position: Participants generally supported bringing B2B supplies into scope alongside B2C supplies to avoid complexity and inconsistent treatment.
• The distinction between B2B and B2C sales was seen as difficult to manage operationally, particularly where customers may provide VAT numbers later, provide inaccurate details, or where platforms cannot easily verify whether a customer is genuinely a business.
• Keeping B2B sales out of scope could require additional system rules, checks and manual processes, increasing cost and complexity.
• Participants noted that the compliance risk exists in B2B transactions as well as B2C transactions, so excluding B2B may weaken the effectiveness of the reform.
• A key caveat was VAT invoicing: if B2B sales are brought into scope, marketplaces may need to assume responsibility for VAT invoices, which could create operational challenges.
• Participants highlighted that product file review and VAT liability classification would be a significant burden across marketplace sales, although this issue applies more broadly than B2B alone.
4. Second-hand goods carve-out
• Key position: Scepticism of a carve-out for second-hand goods and concerns that it could create a new route for VAT avoidance.
• Marketplaces may not be able to verify whether goods are genuinely second-hand, beyond relying on seller declarations or identifying suspicious patterns.
• Concern that some sellers could misclassify goods as used to avoid VAT collection, particularly in categories where used goods sell close to new-goods prices.
• If second-hand goods are brought into scope, marketplaces would likely have to apply the standard VAT rate because they do not know the seller's purchase price or margin.
• Any correction under the margin scheme would therefore need to sit between the seller and HMRC, rather than being calculated by the marketplace.
• If government proceeds with a carve-out, clear guidance would be needed on due diligence expectations, but participants suggested guidance may not fully resolve the practical verification problem.
5. Implementation timeline and approach
• Key position: Participants wanted sufficient implementation time once the final rules are clear, rather than rapid implementation while major design questions remain unresolved.
• Implementation will require IT changes, product file reviews, VAT liability checks, finance processes and potentially additional resource.
• There was concern that a phased approach could create uncertainty about who is in scope and when, potentially distorting competition and adding complexity.
• Simpler rules with fewer carve-outs would allow faster implementation, whereas thresholds, exemptions and special treatments would require more time.
• A light-touch compliance approach for the first six to 12 months was suggested, recognising that marketplaces would be taking on new obligations and may make good-faith errors during transition.
• Experience of the 2021 overseas goods VAT changes was raised: final legislation was implemented quickly, but participants noted that the current proposals involve broader product file and marketplace liability issues.
Other operational points and unintended consequences
• Product file review was identified as a major operational challenge, particularly for marketplaces that may become liable for VAT on large numbers of products where they do not currently control the VAT treatment.
• Retailers with broad product ranges may face a much larger compliance burden than those selling a narrower range of goods.
• Marketplaces may need more headcount, better systems or technology support to manage expanded VAT liability accurately.
• It was suggested there may be a case for allowing such large trusted retailers selling through marketplaces to continue accounting for VAT directly on their own sales where they have better visibility and control, although this would need to be balanced against the overall desire for simplicity.
The group agreed that further input should be gathered from retailers unable to attend, particularly those with significant second-hand goods activity.
Suggested points for BRC response
• Support a simple, comprehensive regime that minimises carve-outs and differential treatment.
• Argue that a nil or very low minimum platform threshold would reduce avoidance opportunities and simplify compliance.
• Request detailed government clarity on small-seller mitigations and ensure any mechanism does not create new marketplace-level complexity.
• Challenge the exclusion of B2B supplies, given the operational and compliance benefits of treating B2B and B2C consistently.
• Question the proposed second-hand goods carve-out because of verification difficulties and the risk of misclassification.
• Call for clear guidance, adequate implementation time and a light-touch compliance period after go-live.
• Highlight the scale of product file, VAT liability and invoicing changes required for marketplaces, and the need for proportionate expectations from HMRC.
