The Chartered Institute of Taxation (CIOT) is calling for revisions to a new government scheme to tackle VAT evasion, so that those who make administrative errors, but are not accused of involvement in tax evasion, are not penalised with swingeing fines.
Businesses that store goods in the UK to deliver to UK consumers, on behalf of sellers established outside the EU, will need to register for the Government’s new Fulfilment House Due Diligence Scheme (FHDDS) this year. HMRC hope that this new list of ‘approved’ UK fulfilment businesses will help combat growing tax evasion and non-compliance in trading in goods via online marketplaces and thereby level the playing-field for legitimate UK and overseas sellers.1
The CIOT has set out a number of concerns about the FHDDS in its response to a recent HMRC consultation.2 Among its concerns is that, where a non-EU supplier is declaring UK VAT and duty correctly to HMRC, the ‘approved’ person or business under FHDDS could still face harsh penalties, such as of £500 for each occasion it records an incorrect import entry number of the goods stored, even if they have otherwise been fully tax compliant and have not been involved in any fraudulent supply chain to date.
Alan McLintock, Chair of CIOT’s Indirect Taxes Sub-committee, said:
“We support HMRC taking action to combat VAT evasion and non-compliance. Compliant retailers should not have to compete against rivals who do not pay the VAT which is properly due.
“However, we are concerned that businesses will be hit with penalties simply due to paperwork mistakes under the new administrative regime, even where there has been no lost tax to HMRC. It is likely to be the ‘little guys’ who make administrative mistakes as they may not have the administration control and oversight that larger fulfilment houses can rely on.
“We urge the Government to adopt a light touch to penalties for such errors where there is no evidence of evasion so the penalty system for the new scheme is proportionate. This is particularly important as the regime is likely to apply to EU sellers, too, once the UK has left the EU. After all, the aim of the scheme is to ensure the system is free from fraud by overseas sellers, rather than to punish ‘approved’ people for making accidental administrative mistakes.”
The CIOT is also concerned that UK fulfilment houses with compliance issues such as late VAT returns or being on time to pay arrangements could eventually lead an ‘approved’ business to lose the ‘approval status’, potentially closing their business despite never being involved in tax evasion.
Notes for editors
1. At Budget 2016, HMRC published its estimate that overseas traders selling goods online to UK customers are costing the Exchequer £1-1.5 billion of VAT a year. The tax abuse is enabled by misdeclaration and undervaluation of goods imported from outside the EU, and sometimes the abuse of reliefs that are designed to facilitate trade. This is followed by the onward sale of the goods to customers in the UK taking place without the correct amounts of UK VAT being paid by the overseas supplier.
FHDDS: You’ll be able to apply online from 1 April 2018. If you’re trading as a fulfilment business before 1 April 2018 you’ll need to apply on or before 30 June 2018. If you start trading on or after 1 April 2018 you’ll need to apply on or before 30 September 2018. HMRC can charge a penalty of £500 for a late application. This could increase by £500 each month your application is late, up to a maximum of £3,000. This is separate to the penalties for administrative mistakes once in the scheme.
There is a £10,000 penalty and a criminal conviction if you trade as a fulfilment business without approval after 1 April 2019.
More information about the Fulfilment House Due Diligence Scheme can be found here.
2. The CIOT’s submission can be read here. Primary legislation introducing the FHDDS was passed by Parliament as part of the Finance (No 2) Act 2017. To complete the legislative framework for the scheme, a statutory instrument is required. The technical consultation that the CIOT responded sought comments from stakeholders on the draft statutory instrument.
3. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)More Articles by Chartered Institute of Taxation (CIOT) ...