Over six months starting in September 2022, a large number of VAT-registered overseas businesses changed their registered address to one residential property in Cardiff. The resident received over 11,000 letters from HMRC and debt collection agencies regarding unpaid VAT, according to an example included in a report the National Audit Office (NAO).
Unfortunately, HMRC’s systems did not initially flag up the surge address changes and it was not recorded as a risk requiring further investigation. HMRC it did not become aware and start investigating until February 2023.
HMRC’s investigation concluded that there were no indicators of evasion, and the problem arose due to an overseas tax agent making 'a simple' typing error when entering the address on behalf of their clients. It also established that most of the sellers were using an online marketplace that was correctly accounting for VAT, and concluded that the error did not increase the risk of fraud.
There were however, a large number of payments overdue from before the 2021 changes that now make online marketplaces liable for VAT, and the NAO notes that the case brought to light the wider weaknesses in HMRC's checks over businesses’ registered addresses.
Useful guides on this topic
Digital Platform Reporting
NEW: Our subscriber guide explains the new reporting rules for Online Market Places: What is Digital Platform reporting? What is a digital platform? What are the digital platform reporting obligations? Who is excluded from digital platform reporting?
Online Sellers: Tax Overview
What are the tax implications of being an online seller? When does a hobby become a business? What is a side hustle? What expenses can online sellers claim for tax purposes? Are there special rules for taxing income? What are the VAT rules for online sellers?
Influencers: What expenses can I claim?
What expenses can online influencers claim for tax purposes? Are there special rules? What are the rules for VAT for online influencers?
HMRC targets online sellers
In August 2023 HMRC started to issue 'one-to-many' letters covering those they believe are trading and have taxable income connected with online marketplaces or online content creation. Ignore this kind of letter at your peril.
Online marketplances: are your ready for tax changes?
From 1 January 2024, Online Digital Platform Operators that are Online Marketplaces have to register with HMRC and report details of people who sell goods and services to buyers from their platforms.
External link
National Audit Office: Report on Tackling tax evasion in high street and online retail.
