Online Selling - What About the VAT?

It is often optimistically considered that trading on eBay and similar online sales platforms is effectively outside the tax system. That, of course, is not true and anyone undertaking economic transactions for profit needs to comply with the tax laws to avoid penalties.

HM Revenue and Customs (HMRC) keep a sharp eye on online marketplaces, not only to find people who are trading in the 'black economy' and not paying tax, but also to find overseas suppliers who sell to the UK without accounting for VAT, which they are required to do under the 'distance selling' rules.

HMRC recently announced that during the last two years, more than £200 million of VAT was collected after they found more than 4,600 overseas vendors not paying the correct amount. Where the seller does not comply, HMRC can levy a 'joint and several liability' notice on the online sales platform, which requires it to remove the vendor or face becoming responsible for the VAT.

With the technology now available, HMRC are able to discover this sort of tax underdeclaration much more easily than in the past. However, not all transgressions result from wilful actions. The tax rules are often complex.