Tuesday, December 22, 2020
The UK Government is inviting input on the tax challenges associated with the rise of the sharing economy.
The sharing economy enables individuals to provide goods or services to other individuals, typically through a digital platform, such as ride-sharing services and temporary accommodation services. In a new call for evidence on the need for reform of the UK's VAT rules, the Government notes that the sharing economy creates huge opportunities for the UK economy but also potentially creates certain challenges to the VAT tax base.
Specifically, the call for evidence notes the potential for long-term erosion of the VAT base due to consumers shifting their consumption to the sharing economy. Without reform, this erosion will take place, for instance, because individual suppliers are typically not required to charge and remit VAT because their turnover falls under the VAT registration threshold, the paper says. In addition, as they are not required to register for VAT, their payments of commission fees to digital platforms situated overseas without a fixed place of establishment in the UK will not be caught by the rules for business-to-business supplies of services, under which VAT would be due in the UK under a reverse charge.
Finally, the report looks at problems regarding ensuring that service providers comply with VAT rules, and also compliance by digital platforms, especially those based offshore.
Among other things, the report asks for input from sharing economy platforms on the revenue typically earned by services providers using their platform. It also asks for input on the roles played by different actors in the sharing economy regarding their treatment, as either agent or principal.
On options for reform, the paper considers whether to require sharing economy digital platforms to account for VAT on the supplies that underlying service providers make to consumers.
Announcing the call for evidence, the Government said: "The aim of this call for evidence is to test the government's view of the VAT challenges the sharing economy creates. We welcome stakeholder views, both those who may share our initial assessment and those who bring challenge to that perspective as well as evidence of other challenges that we have not yet considered. We are also seeking stakeholder views on potential next steps in evaluating and responding to these challenges."
Input is being sought until March 3, 2021.