Full disclosure: in order to tell this story we are having to make a number of assumptions that have not been definitively proved to be true. The tribunal that adjudicated on the matter specifically stated that allegations made by the taxpayer were no more than that, certainly not proven facts. However, the allegations ring true and are reasonable, making the issue worthy of an airing.
Bearing all that in mind, the following is a necessarily broad description of the “facts”:
- the taxpayer sold goods through an online marketplace;
- the taxpayer was based in the UK;
- the goods were in the UK at the time of sale;
- therefore the taxpayer was required to account for VAT on sale of the items; but
- due to a misunderstanding, the online marketplace was led to believe (or decided for reasons of its own) that the taxpayer was not based in the UK;
- the consequence of this was that the marketplace collected the VAT, paid it to HMRC and paid the net figure over to the taxpayer;
- the taxpayer discovered that it was recorded by HMRC as being based outside the UK;
- HMRC acknowledged to the taxpayer that this sort of error was a “known issue” within HMRC; but
- HMRC insisted nonetheless that the taxpayer had to account for output VAT on its sales, even though VAT had apparently already been deducted and accounted for by the online marketplace.
The taxpayer lost its appeal, because it was undoubtedly responsible for the VAT in question. Its remedy was to demand the “VAT” back from the online marketplace. Of course the taxpayer will have asked for a refund and have been told that because it was based outside the UK the VAT had been properly dealt with. It presumably then decided that an appeal to the tribunal was its only way forward. Maybe it will now be able to show the marketplace the tribunal’s decision and wrest a refund from it that way.
We do not know whether the marketplace decided unilaterally that the taxpayer was non-UK, or whether it was instructed to do so by HMRC. The facts suggest the latter but that is only an inference. A strong inference but an inference nonetheless.
Similarly, we do not know whether it is really a “known issue” within HMRC that UK traders are being misclassified as non-UK. If it is known, it is disappointing that the tribunal appeal was allowed to go ahead without an admission from HMRC and a promise to rectify the situation. But then, of course, HMRC is collecting double VAT in these cases, so there is little incentive to hurry. In the meantime, the marketplace does what it’s told and the taxpayer foots the bill, caught between a rock and a hard place.
