HM Treasury Calls for Evidence on VAT Challenges of the Sharing Economy

Denise Hatem
February 2, 2021

HM Treasury recently published a call for evidence on VAT and the Sharing Economy. The aim is to test the government’s assessment of VAT challenges created by the Sharing Economy and to explore next steps.

The consultation document defines the Sharing Economy as “an accessibility-based socio-economic model, typically enabled or facilitated via advanced technological solutions and trust-building tools, whereby human or physical resources and/or assets are accessible (for temporary use)/shared – to a large extent – among individuals for either monetary or non-monetary benefits or a combination of both.” To ensure broad scope of analysis, the government urges responders to “consider in scope any digital platform which facilitates the supply of services between two or more unconnected parties, where those services do not involve any transfers in the ownership of tangible or intangible property. In practice, these services will generally take the form of individuals hiring out either their labour or renting out their assets, or a combination of both, in return for consideration…”

The government acknowledges that the Sharing Economy stimulates enterprise but considers that it presents challenges to the VAT base. It identifies three categories of challenges.

    • Accounting for VAT at final consumption (B2C and C2C): Non-VAT-registered business are supplying a greater proportion of services, and that trend is likely to grow. Service providers on digital platforms may not satisfy criteria for being “in business,” removing their activities from the scope of VAT. Even where service providers are in business, they may have no obligation to register because revenue is below the registration threshold.
      A new approach to agent-principal rules may be needed in the sharing economy context. Business models usually involve a digital platform acting as an agent of the principal service provider, who is required to account for VAT on its services if registered. However, the service provider won’t account for VAT on its services if revenue doesn’t exceed the registration threshold and it doesn’t voluntarily register.
    • Accounting for VAT on cross-border B2B transactions: Digital platforms usually charge commission fees for the service of connecting service providers with consumers. The platform’s supply of that service will be treated as a B2B transaction if the platform considers the service provider to be in business. Platforms based outside of the UK won’t charge VAT on B2B supplies into the UK because the business customer, the service provider, is responsible for VAT under the reverse charge mechanism. However, if the service provider is below the registration threshold and hasn’t voluntarily registered, then it isn’t required to account for VAT under the reverse charge. There is a risk, then, that no party to the transaction has an obligation to account for the UK VAT, even though foreign platforms generate considerable revenue from UK service providers.
    • Promoting compliance: VAT measures applicable to the sharing economy will need to be enforced. This will require cooperation of digital platforms, who keep records of service providers’ transactions.
      As the UK is no longer bound by the EU VAT regime, responding to VAT challenges of the sharing economy may be among many possible changes to UK VAT rules. The call for evidence will close on 3 March 2021, and a summary of responses will be published within 12 weeks of the closing date.

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Denise Hatem

Denise Hatem is a Regulatory Counsel at Sovos specializing in international taxation, with a focus on value added tax systems in the European Union. Denise received her B.A. from the University of Connecticut and her J.D. from Notre Dame Law School. She is a member of the Massachusetts Bar.
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