UK Tax Authorities Start a Consultation Phase On Split VAT Payment
After having published the responses to the call of evidence regarding alternative method of VAT collection, HMRC has launched a new consultation phase about the split VAT payment mechanism.
This initiative intends to evaluate the possible implementation of an alternative VAT collection mechanism aimed at reducing VAT fraud.
What is the VAT split payment mechanism?
Under the usual rules of VAT, the supplier issues an invoice for the net and VAT amount to the customer; the customer will pay the gross amount (net and VAT) to the supplier, who will collect the VAT and pay it to the tax authorities.
Under the split VAT payment mechanism, the supplier also issues an invoice for the net and VAT amounts, however, the customer will only pay the net amount to the supplier. The VAT portion is paid directly to the tax authorities, hence eliminating the ´collection´ role of suppliers.
Proposed split VAT payment mechanism in the UK
The discussion about a split VAT payment scheme in the UK is still on a very early stage, but the design of such scheme at the moment can be briefly summarized as follows:
- In an online transaction involving an overseas seller and a merchant acquirer, the merchant acquirer is considered to be the best party to handle the split on the transaction.
- HMRC suggests a system of split payment obligations for card issuer, payment companies or market places as a fall-back option. This fall-back option would be necessary in case the merchant acquirer is not able to or does not make the split.
Although the project of implementing a split VAT payment scheme in the UK will still take a while (HMRC estimates a period between 3 and 5 years for the payment industry to design and build these systems), split VAT payment has been introduced in Italy for B2G supplies and in Poland and Romania on a voluntary basis.
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