UK plans sharing economy VAT reforms

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The UK has issued a public call for public consultation on VAT and the gig and sharing economy. UK tax authorities are seeking more effective ways to regulate sharing and gig economy VAT in a digital world.

The move is further evidence that international tax authorities are working actively to modernise their VAT rules. Already, e-commerce and digital services create added complexity to international VAT compliance. Gig and sharing economy platforms produce further ambiguities.

As the call for evidence document notes, “when the UK introduced VAT in 1973 the phenomenon of mass digitalisation was still many years ahead in the future. The digitalisation of the economy in the intervening period has created substantial challenges to the international tax framework.”

Given the increasing scale of the digital gig economy in the UK, it is no surprise that authorities have turned their focus to clarifying a framework for gig economy VAT.

The document notes that revenue from “key Sharing Economy sectors” in the UK was estimated at approximately half a billion pounds in 2014. By 2025, experts forecast that total platform revenue will rise to £9 billion.

It is therefore clear that experts predict continued rapid growth in the sharing economy sector.

 VAT implications for major sharing economy sectors 

The UK consultation focuses on the five biggest sharing economy sectors, listed as follows:

  • short-term accommodation
  • passenger transportation
  • on-demand household services
  • on-demand professional services
  • collaborative finance

 

As can be seen, these categories are fairly broad, covering such diverse functions as renting out short term accommodation, to grocery shopping to peer to peer lending.

However, the process is still at a preliminary stage.

It is important to note that the sharing economy is dynamic, and many digital platforms are disruptive by design.

Individuals and businesses may therefore find that new sharing economy opportunities come to exist in their sectors.

A sharing economy – or an uneven playing field?

The consultation document notes that sharing economy platforms appear to fulfil many traditional business functions. However, the platforms don’t share corresponding VAT liability.

That’s because the underlying service provider is contractually considered to have made the supply to the final consumers. It follows that the arrangement potentially provides a competitive advantage to platforms over VAT-registered businesses.

In order to create a more level playing field, the document notes,  “policymakers may need to consider the grounds for new laws that reflect the changing nature of economic activity in the digital age.”

The larger digital VAT framework

The UK has already created new VAT regulations for online marketplaces. Notably, these make the OMP itself responsible for VAT in many instances.

Similarly, it is reasonable to believe UK authorities will make related moves regarding sharing economy digital platforms.

Disclaimer: Reproduced/Adapted with permission from VATGlobal.

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