HMRC launches an e-commerce VAT split payment project

2 November 2023

In 2018, HMRC published a consultation on the possible use of “split payments” to collect VAT directly via the e-commerce payment process. The idea is that when qualifying goods or services are purchased, the VAT element of the purchaser's payment would be routed to HMRC directly, and the seller will only receive the net amount.

By implementing a split payment regime, it's hoped that this will reduce VAT losses, specifically when consumers buy goods from sellers who supply from outside of the UK and, either through fraud or ignorance, do not comply with their VAT obligations.

In October, HMRC initiated an 18-month proof-of-concept (POC) project relating to the consultation, which will be used to evaluate the feasibility of introducing the new process. The focus of the project is on sales of e-commerce goods and services by non-resident suppliers and is being undertaken in cooperation with Payment Service Providers such as credit card companies, online payment service providers and e-wallet providers.

The POC will test a range of capabilities, including the technology's ability to know when VAT is chargeable or not. Also, whether an intervention can be made without the consent of the seller or buyer to send the VAT payment directly to HMRC.