Split payment model for online sales

HMRC has published a call for evidence on how payment technology could be used to extract VAT from online purchases at the point of purchase.

The department is concerned that the growth in shopping through online marketplaces has resulted in significant losses of VAT. It estimates that in 2015-16 the VAT lost from overseas businesses selling goods to UK consumers in this way was £1.5bn.

In essence the document considers requiring the credit card company or other financial institution to pay the VAT directly to HMRC in real time (so that it never reaches the supplier) or introducing a withholding tax system on the finance companies to ensure that at least some of the VAT is paid This is referred to as split payment.

The key factors thatcreate the opportunity for non-compliance are:

• businesses based in overseas jurisdictions but with obligations to register...