VAT and the sharing economy

16 December 2020: As HM Treasury asks for evidence on how VAT is working with the sharing economy, ICAEW’s Tax Faculty asks whether the current rules for charging VAT work in the face of new ways of working?

Last week, the Treasury launched a call for evidence on VAT and the sharing economy.

Although the big online sharing economy platforms are themselves VAT registered, an increasing number of smaller firms obtain their business through these platforms, while themselves remaining quite legitimately below the VAT registration threshold.

In addition, the government is concerned that as well as changing the nature of the VAT base, new ways of doing business and the growth of the digital economy may be putting traditional businesses at a disadvantage.

So, is the UK’s VAT income being challenged?

PWC has estimated that the five key sharing economy sectors in the UK (collaborative finance, short-term accommodation, passenger transportation, on-demand household services and on-demand professional services) could see a 20-fold increase in the total value of transactions to £140bn in 2025, from just £7bn in 2016.

The Budget 2020 Red Book published in March 2020 had total estimated VAT receipts to be £161bn, the second highest source of tax receipts (income tax was estimated to raise £208bn).

With such large sums of tax at stake and at a time when the UK needs to look seriously at areas of growth, ICAEW’s Tax Faculty believes that this is an area to consider very carefully.

The Treasury’s call for evidence recognises that the sharing economy not only creates challenges for VAT, but also impacts other taxes and that “certain issues may benefit from coordinated policy responses across taxes that also encompass those digital platforms which facilitate the sale of goods and digital services”.

Although it is not the focus of this call for evidence, it seems that the taxation of work might be in mind once more.

Those responding are asked to consider 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.”

If you have evidence or suggestions for consideration as part of the ICAEW response to this call for evidence, please email anita.monteith@icaew.com or neil.gaskell@icaew.com before 8 February 2021. The closing date for responses to reach HM Treasury is 3 March 2021.