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Value Added – New VAT "joint liability" risk for online marketplaces

30 April 2018. Published by Robert Waterson, Partner

The flow of goods cross-border has increased significantly as a result of the inexorable rise of the online marketplace. Policing the tax aspect of online businesses has created numerous difficulties for national authorities. In no area is this felt more than VAT, where many online traders (both inside and outside the EU) have opted wittingly or otherwise to evade tax by simply not registering or accounting for VAT in any jurisdiction.

The "place of supply" rules have certain complexities to them, but broadly speaking, where goods are supplied to consumers, VAT falls to be charged at the rate set in the country in which the consumer resides – and accounted to the local revenue.

Assuming certain threshold conditions are met, liability to account for and pay VAT falls to the seller. Section 38 of the Finance Act 2018, which came into force on 15 March 2018, amends the Value Added Tax Act 1994 in the case of goods sold through online platforms such as eBay, Amazon and Gumtree, such that if the operator of a platform knew or "ought to have known" that a non-UK seller was not accounting for VAT, and does not act, HMRC will have the power to treat both the seller and the operator as jointly and severally liable for any under declaration of VAT.

If HMRC identify any seller on an online marketplace that has not met their VAT requirements, they will issue the operator a 'joint and several liability' notice. They then usually have 30 days to stop the seller from offering goods for sale in the UK on the marketplace.

HMRC can also issue an operator with a different type of notice if it determines that the operator 'knew or ought to have known' that the overseas seller was failing to fulfil their VAT obligations, and still permitted it to sell goods on the marketplace. This notice will be sent 60 days from the date that the trader first "knew or ought to have known" of the issue. The operator can dispute their liability after receiving the notice.

HMRC has issued guidance on the new legislation.



Are you operating an 'online marketplace'?

An online marketplace is a website (or any other means by which information is made available over the internet) that anyone (including the online marketplace operator) can use to offer goods for sale. This applies even if you are not established in the UK.

Is a third-party seller an 'overseas seller'?

A third-party seller is an overseas seller if they are selling goods stored in the UK to UK consumers, but are not established in the UK. This also applies to overseas sellers based outside the EU who sell goods to a UK consumer, and then import them into the UK.

Does the seller have to register for VAT?

Sellers based in the UK, with a turnover of over £85,000, need to register for VAT.

Overseas sellers must register for VAT if:

  • They are selling, or will be selling, taxable goods in the UK as a business activity now, or will be within the next 30 days - this includes selling goods:


    • in the UK at the point of sale


    • to a UK consumer, and then imported into the UK by the seller


  • They do not have a business or other fixed establishment in the UK relating to any business the operator carries out.


  • They advertise or offer goods for sale on a website that will be supplied in the UK.

Private individuals who make ‘one-off’ or occasional sales do not need to register for VAT.

The new rules have the effect of placing additional requirements on operators of online platforms to undertake due diligence checks on their sellers and, where appropriate, take action, in order to protect themselves from sanction. The following are some of the factors operators will need to consider.

  • Relevant sellers' VAT Registration Numbers (VRN) and their validity (which can be checked on;
  • The sellers' location;
  • Location of the goods being sold;
  • Prior removals of the sellers or their controlling entities from the marketplace;
  • How quickly sellers can fulfil UK orders;
  • Any information provided by third-parties on the sellers, including HMRC, which might indicate dishonesty or failure to meet VAT obligations; and
  • Monitor when sellers begin to offer goods for sale on the online marketplace.
Where HMRC issues a notice, operators will have only a short period (normally 30 days from the date on the Notice) in which to challenge it. Operators should act quickly to establish whether they are caught by the legislation, whether HMRC has applied the relevant test correctly and whether any defences to the Notice are available.