Spring Budget 2017 – New method of collecting VAT – ‘split payments’ model

Alternative methods of collecting VAT from overseas online businesses are being considered by HMRC.

Some measures to tackle the problem have already been introduced and we reported on these announcements in the Budget 2016 and in the Autumn Statement 2016.

On 20 March 2017, a ‘call for evidence’ on a new VAT collection mechanism for online sales will be initiated. This is the next step in tackling the non-payment of VAT by some overseas traders selling goods online to UK consumers.

The new mechanism would harness technology to allow VAT to be extracted directly by HMRC from transactions at the point of purchase. We await details of the proposal.

This is often referred to as a ‘Split Payment’ model and is currently used in Italy for supplies to government agencies, an arrangement which has been extended with European Commission permission.

At present, the alternative method for collecting VAT is expected to affect overseas online traders.