VAT and the sharing economy: Summary of responses

HM Treasury has published a summary of responses to their call for evidence ‘VAT and the Sharing Economy’ which opened in December 2020.

The call for evidence sought to explore the VAT challenges that the sharing economy creates.

Many organisations use different definitions of the sharing economy. The call for evidence used a working definition that aligned with the OECD's working definition: 

“An accessibility-based socio-economic model, typically enabled or facilitated via advanced technological solutions and trust-building tools, whereby human or physical resources and/or assets are accessible (for temporary use)/shared - to a large extent - among individuals for either monetary or non-monetary benefits or a combination of both.”

Three categories of VAT challenges were identified by the call for evidence:

Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C).

VAT challenge: erosion of the VAT base due to increased volume and value of supplies by non-VAT registered businesses and the need to explore alternatives to the Agent-principal VAT rules.

• Views were mixed and evidence of the size and nature of the sharing economy was limited.
• Some respondents considered that digital platforms should be required to account for VAT on supplies they facilitated.
• Others argued that the sharing economy does not erode the VAT base, but instead grows markets and sectors.

Business-to-Business (B2B)

VAT challenge: existing Place of supply rules for cross-border B2B supplies of services prevent HMRC from collecting VAT on commissions charged by digital platforms.

• Respondents were generally in favour of a change in legislation to ensure such VAT is collected by HMRC.

Promoting compliance

VAT challenge: how can VAT compliance by service providers and digital platforms be ensured, especially where they are based offshore?

• There was overall support for increased data sharing between platforms and HMRC.
• Opinion was divided on making platforms liable for VAT on supplies by underlying service providers.

Next steps

• Overall, a wide range of responses was received which the government will use to further develop an understanding of the sharing economy, its implications for VAT and the need for potential reform.
• It was acknowledged that the size and nature of the sharing economy needed to be better determined in order to properly assess any impact it may have on VAT base erosion.
• Given the potential support for change to the cross-border B2B service rules to collect VAT where intended, continued assessment of the merits of reform in this area will be undertaken.
• More detailed policy options for data sharing to ensure VAT compliance will also be explored.

Useful guides on this topic

Place of supply: Services
The Place Of Supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

Agents and principals
Where someone is acting as agent for a principal, it is possible that the income received by the agent on behalf of the principal is outside the scope of VAT for the agent. What is an agent for VAT purposes? When do these rules apply? 

External link

HM Treasury: VAT and the Sharing Economy: Call for Evidence and Summary of Responses