A crackdown on businesses that sell through online marketplaces has emerged as a solution to fund the government’s 20% cut in business rates for pubs, social clubs, and music venues.
Expert small-business accountants, The Accountancy Partnership, are revealing how measures could be applied and their possible impact on the UK’s online sellers, big and small.
“While lots has been made about the government’s announcement to target businesses like vape shops, I find the release’s plans for online marketplaces particularly interesting. Online marketplaces are already subject to reporting rules and VAT conditions around their users, so new enforcement will likely be a significant extension.
“It means people who sell on Etsy, eBay, and Amazon need to be especially aware of their VAT responsibilities and any upcoming measures announced by the government,” says Lee Murphy, Managing Director of The Accountancy Partnership.
Despite focus being placed on the marketplaces, a proposed crackdown has potential to affect not only large non-compliant operations but also sole traders selling items like vintage clothes and trading card collections without a full understanding of tax obligations.
Policies like VAT conditions already exist across marketplaces, with platforms able to deduct from a qualifying sale if VAT registration isn’t provided. This makes any new changes very interesting.
While policies are in the consultation phase, The Accountancy Partnership sat down with Lee Murphy to predict and clarify upcoming changes to the scrutiny of online selling:
Lee predicts ‘stringent identity checks’ and increased data sharing
“It appears the burden will be placed on the big marketplace giants, so sellers will start to notice changes on the platform. Any moves will likely build on policies that signal greater transparency to stop HMRC having to chase down individual sellers.
“A likely scenario is more stringent identity verification across platforms, including collecting a person’s national insurance number or UTR. Marketplaces like Amazon already require photo ID and regularly re-verify seller information beyond initial account creation, so this may be rolled out more broadly. While it creates a fair bit more admin work for legitimate sellers, it may also go a long way toward increasing consumer confidence.
“It would be a major change, but the previous government stated plans to look at ways marketplaces can collect and pay VAT from sellers directly to HMRC. Non-UK sellers on Amazon will be familiar with this approach. If implemented more widely, it could reduce a lot of admin from the seller’s perspective.
“What’s more likely is some form of automated VAT verification. In this case, marketplaces would need sellers to declare they’re VAT registered, allowing them to check this against HMRC records. Sellers approaching the registration threshold would be notified of their obligations, increasing marketplace accountability but ultimately placing responsibility with the sellers.”
Know what you owe or face HMRC scrutiny, warns Lee
“As with recent changes like MTD, businesses already keeping consistent and accurate records will only notice a negligible difference during this clampdown. The biggest burden will likely be on the administrative side. But with our recent survey showing tax admin already negatively impacts 3 in 10 small businesses, we’d like to see these processes automated where possible.
“While the measures rightly target people deliberately operating outside the tax system, sellers who’ve unintentionally misunderstood or don’t keep accurate records are also at risk of greater scrutiny than before.
“My advice for the latter is not to be worried, but simply prepared. A lack of understanding around VAT is often due to the long-standing assumption that selling online somehow removes an element of tax responsibility. It doesn’t.
“Use the period before reforms as an opportunity to get your finances in order. Confirm your bookkeeping accurately reflects all sales across every platform, reviewing if you’re registered for VAT or when you should be. This is especially important if sales have grown recently.
“If you’re unsure whether you meet tax obligations, talking to an accountant sooner rather than later is your best first step. Proactively fixing any oversights or mistakes is far easier than dealing with questions from HMRC or facing potentially costly penalties.”
Lee explains the major benefits, if done right
“If handled well, I think the potential of these reforms could create a more competitive sales environment while having a much broader positive impact on our wider economy.
“I believe most small businesses selling online are already investing significant time and money in staying compliant with tax rules. It’s sellers deliberately avoiding VAT that are putting others at a disadvantage by being able to sell more cheaply.
“I also think stronger enforcement in the online space has an educational role to play, dispersing tax confusion and creating greater understanding of responsibilities and expectations. And there’s absolutely an argument to be made that reforms can help boost consumer confidence, with verification helping to build trust in businesses operating on bigger marketplaces.
“Ultimately, measures to improve compliance could help level the competitive playing field while simultaneously supporting the hospitality industry alongside reinvestment in public services.”
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