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British retailers hit hard by VAT changes to eBay fees

New measures introduced to eBay fees on the ecommerce platform mean thousands of businesses not VAT registered will incur extra costs from selling online.

Earlier in the summer, eBay wrote to business sellers and informed each that from 1 August 2017 VAT would be applied to all fees. The 20 per cent tax now being applied will have less of an impact on those which are VAT registered, but could erode margins for those trading under £85,000 and on the flat rate scheme.

Parties likely to be impacted by the rise in eBay fees the most are those that transitioned from being a private seller, which do not have VAT added to sales, to a business seller.

The eBay fee changes were introduced in response to powers given to HMRC by the chancellor in 2016. This meant Britain’s tax regulator could force online marketplaces to ensure overseas customers were registered and accounting for VAT.

As part of the new payment policy, sellers can reclaim VAT from eBay transactions on VAT returns. Previously, eBay deducted VAT from sales if a VAT number was provided by a seller alongside special dispensation which removed VAT fees entirely.

Alan Pearce, VAT partner at law firm Blick Rothenerg, said: “So far, according to HMRC, over 7,000 new ‘internet traders’ applied for VAT registration in 2016, compared with just 700 in the previous year, suggesting that the new powers are having a significant effect. It is expected that these new measures will secure a much needed additional £875m of VAT revenue by 2021.”

In March 2017 HMRC published a report called “Tackling the hidden economy: Sanctions”. Contained within it was a look at the kinds of new penalties and sanctions that could be applied to those operating in the so-called “hidden economy”.

Following a two month consultation period between August and October in 2016, HMRC concluded that the 2014/15 tax gap due to the hidden economy stood at £6.2bn – 17 per cent of the total tax gap.

Business Advice spoke to one small business retailer about the impact, and discovered cash flow was a particularly prevalent issue.

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Source: Business Advice

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