VAT & Online Marketplace
A recent First-tier Tribunal decision serves as a useful illustration of how the VAT rules for online marketplaces operate in practice - and what can go wrong when a seller's status is incorrectly recorded.
HBS Enterprises Ltd is a UK-established business selling goods through Amazon. Due to an error originating from within HMRC's own systems, HBS was wrongly flagged as a non-established taxable person. That incorrect status was visible on HMRC's VAT checker, which displayed an Aberdeen address commonly associated with non-established registrations. Acting on this, Amazon applied the online marketplace rules applicable to non-established sellers - treating HBS's supplies to Amazon as zero rated deemed supplies and accounting for VAT on the onward sale to customers itself.
The VAT framework here is straightforward in principle. Where a UK-established seller makes sales through an online marketplace, it accounts for VAT directly on those sales. The deemed supply mechanism - under which the marketplace is treated as the seller and accounts for the VAT - applies only where the seller is not established in the UK. HBS did not meet that condition.
The tribunal confirmed that HBS was a UK-established business and therefore directly liable for output VAT on its sales. The fact that Amazon had also accounted for VAT on the same transactions did not discharge HBS's own liability. Equally, the fact that the misclassification originated with HMRC did not alter the statutory position. The tribunal's role is to apply the law to the facts, and the facts placed HBS squarely within the standard rules.
The appeal was allowed in part, suggesting the tribunal accepted some challenge to the amounts assessed, though the underlying liability was upheld.
Two points from this decision are worth carrying forward.
a taxpayer's statutory obligations cannot be displaced by administrative error, whether that error belongs to HMRC or a third-party platform.
HBS was aware of the misclassification at the time and did not take steps to correct it. That is unlikely to assist any taxpayer's position.
The tribunal acknowledged that separate remedies may be available to HBS in respect of HMRC's error, but those fall outside the jurisdiction of a tax appeal.
Businesses selling through online marketplaces should ensure their VAT status is correctly recorded and that the VAT treatment being applied to their sales is consistent with their actual position - not simply what a platform's systems are showing.
