UK Tax News | 26.01.2018

HMRC urged to temper new VAT penalties for online retailers ‘

The Chartered Institute of Taxation (CIOT) is calling for amendments to a new government scheme to tackle VAT evasion to safeguard those that make administrative errors, but are not accused of involvement in tax evasion, are not penalised with heavy fines.

Businesses that store goods in the UK, to deliver to UK consumers on behalf of sellers established outside the EU, will require to register for the Government’s new Fulfilment House Due Diligence Scheme (FHDDS) this year. The intention is that the introduction of a list of “approved” UK fulfilment businesses will help combat growing tax evasion and non-compliance in the trade in goods via online marketplaces and thereby level the playing field for the legitimate UK and overseas sellers.

The CIOT has set out a number of worries about the FHDDS in its response to a recent HMRC consultation. Among its concerns is that, where a non-EU supplier is declaring UK VAT and duty correctly to HMRC, the “approved” person or business under FHDDS could still face harsh penalties, such as of £500.00 (approx. $690.00) for each instance it records an incorrect import entry number of the goods stored, even if they have otherwise been fully tax compliant and have not been involved in any fraudulent supply chain to date.

Mr. Alan McLintock, Chair of CIOT’s Indirect Taxes Sub-committee, said: “We support HMRC taking action to combat VAT evasion and non-compliance. Compliant retailers should not have to compete against rivals who do not pay the VAT which is properly due.”

“However, we are concerned that businesses will be hit with penalties simply due to paperwork mistakes under the new administrative regime, even where there has been no lost tax to HMRC. It is likely to be the ‘little guys’ who make administrative mistakes as they may not have the administration control and oversight that larger fulfilment houses can rely on.”

“We urge the Government to adopt a light touch to penalties for such errors where there is no evidence of evasion so the penalty system for the new scheme is proportionate. This is particularly important as the regime is likely to apply to EU sellers, too, once the UK has left the EU. After all, the scheme aims to ensure the system is free from fraud by overseas sellers, rather than to punish ‘approved’ people for making accidental administrative mistakes.”

The CIOT says it is also afraid that UK fulfilment houses with compliance issues, such as late VAT returns or being on time to pay arrangements could eventually lead an “approved” business to lose the “approval” status, possibly closing their business despite never being involved in tax evasion.

Primary legislation introducing the FHDDS was passed by Parliament as part of the Finance (No. 2) Act 2017. To complete the legislative framework for the scheme, a statutory instrument is essential, the CIOT noted.

HMRC The Scottish government is pushing for the UK to stay in the EU ‘Single Market’

As Brexit talks start to focus on tax and trade matters, the Scottish Government has released an analysis of three ‘realistic’ Brexit policy options, emphasising a ‘hard’ Brexit would be destructive for Scotland’s economy.
The conclusions, released on 15th January 2018, look at the three potential outcomes that the Scottish National Party (SNP) contemplate are realistic: staying in the Single Market, a ‘Canada type’ deal, and leaving with no EU trade deal.

The report warns that departing the EU Single Market would see Scotland’s economy shrink by up to £12.7bln ($17.5bln) by 2030, compared with continued EU membership.

The SNP notes that the European Commission has previously made clear that, if the UK Government’s ‘red lines’ remain in place, the only deal that could be achieved is one similar to the EU-Canada free trade deal – the UK being outside of the Single Market and Customs Union (a so-called ‘hard Brexit’) with an EU trade deal.
“The Canadian deal removes some trade barriers but took seven years to be agreed and is far from comprehensive. For example, Canadian financial services firms do not benefit from ‘passporting’ that would allow them to trade with countries in the EU”, said the SNP.

According to the Party’s investigation, such an agreement would result in a reduction in Scottish GDP of 6.1% by 2030 or £9bln in cash terms, compared with continued EU membership. There would be a reduction in real disposable income of 7.4% by 2030.

Remaining in the Single Market is by far the favoured option for the SNP. It said “being in the Single Market gives Scottish businesses unfettered access to a market of around 500 million consumers. The purpose of the Single Market, put simply, is to make it as stress-free to trade between Edinburgh and Dusseldorf, as it is between Edinburgh and Dundee. If the UK were to stay in the Single Market, Scotland’s GDP will fall by 2.7% by 2030, or by about GBP4bn, compared to continued EU membership, and disposable incomes would fall by 1.4%.

“The analysis confirms that if we are to mitigate the impact of Brexit we must stay in the Single Market and Customs Union. If the UK were to remain in the Single Market, Scotland’s GDP would be £8.7 bln higher than leaving the EU with no deal,” the SNP said.

The UK consults on Making Tax Digital

Draft regulations have been released by the UK for consultation and draft VAT notice for the April 2019 launch of Making Tax Digital (MTD) VAT. A pilot for taxpayers, agents, and software providers is scheduled to start in April 2018.

MTD is an aspiring program to digitise tax records and reporting for businesses and individuals for VAT, Corporation Tax, and Income Tax. It aims to assist taxpayers to calculate and report their tax rights, which many businesses struggle with.

VAT is the first tax to be mandated for MTD and would apply from April 2019 for all businesses over the annual VAT threshold.

The MTD VAT includes two main changes:

1. All businesses to keep and continue their VAT records digitally; and
2. Qualifying businesses will require to submit their VAT return data to HMRC through MTD compatible software, via an API interface, often produced by third-party providers. This will represent a change from the current online filing manually or via XML. The information will complete the 9 boxes of the existing VAT return.

The guidelines issued as part of the consultation confirms which data should be maintained digitally:

• Business name of the taxable person;
• Address of the business;
• VAT number;
• Any VAT accounting schemes used;
• The VAT account (the information in this will be used by the software to calculate and fill in the return);
• Totals of any alterations (not the calculations underlying them);
• For VAT sales and purchases, the following data:
  • Date of supply;
  • Net value; and
  • VAT charged
• Totals of any alterations or amendments made to the VAT account;
• Totals of sales VAT by different VAT rates; and
• Daily Gross Takings (DGT) – for retailers using a retail scheme.

Partial exemption calculation need not be maintained digitally. Furthermore, there will be no non-compliance fines for the first year to allow companies to change to the new regime.

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