Online marketplaces (OMPs) are subject to new VAT rules in the UK, as of January 1, 2021. In this article, we’ll discuss the new rules and how they affect marketplaces.
But first, let’s look at the definition of a facilitating online marketplace, or an OMP that facilitates sales in the UK.
What are Facilitating Online Marketplaces?
Facilitating OMPs are platforms, portals, or marketplaces that operate via a website or an application to facilitate the sale of a product to an end customer. Examples include Amazon, eBay and Etsy, among others. To be considered as such, they need to meet all the following conditions:
- Define the sales’ terms and conditions,
- Participate in the order or delivery of the products,
- Enable the processing of the customer’s payment.
Platforms or websites that only advertise or list products, or that redirect customers to other websites where the sale occurs, without further interventions to the sales or the delivery process, are not considered facilitating OMPs.
How Do OMPs Determine the Correct VAT Rules?
OMPs need to collect a few pieces of information in order to determine which VAT rules apply and collect and remit VAT. These data points include:
- The value of the goods, and whether it exceeds £135 (excluding shipping fees and insurance)
- The location of the goods at the moment the transaction took place
- The location of the seller and whether they are tax registered in the UK
- Whether the customer is a business that has a VAT registration in the UK
- The type of goods, which could affect the VAT rate (standard, reduced or zero-rate).
VAT Obligations of OMPs
OMPs are responsible for collecting and remitting VAT on the deemed supplier transactions. This means that it’s crucial for them to gather all necessary information (as outlined above) and make sure it’s correct. They also need to ensure they’re charging VAT whenever needed. The UK tax authorities expect them to take all necessary steps to determine the correct VAT rate and collect taxes.
OMPs need to keep records of all transactions of the past 6 years, whether they were the deemed supplier (responsible for VAT collection) or not (in which case, the seller needs to collect VAT).
For more information on the specific VAT obligations of sellers and OMPs that sell goods to UK customers, please check our article on the topic.
Is Shopify Considered a Facilitating OMP?
In short, the answer is no.
Shopify allows individual sellers to sell goods via its platform. However Shopify aren’t involved in the order or delivery of goods, nor in setting the terms and conditions that apply to the sale. This means that Shopify is not a facilitating OMP according to the current definition.
Amazon, eBay, Zalando and other similar platforms are, however, facilitating OMPs and need to collect sufficient information to fulfill their VAT obligations.
How Can Fonoa Help You?
We recommend e-commerce businesses to prepare for these new rules timely. For volume businesses, this means ensuring your IT systems and e-commerce software are ready to handle the complexity these new rules bring and provide you (or your tax accountant) with adequate data to file your tax returns.
At Fonoa, we have developed a platform that is ready for the future and automates all aspects of your e-commerce VAT obligations.
A digital one-stop shop for online retailers with standard integrations to the world’s leading marketplaces and e-commerce tools like Shopify, Woocommerce, Magento and Opencart.
What’s more, reach out to us and we can help you handle your tax registrations, tax filings and representation where needed.