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Who pays the VAT in an internet trade?

Consultant and author Neil Warren discusses some of the tax challenges when selling goods and services on the internet.

VATThere have been some high-profile cases recently of businesses encountering a VAT problem with HMRC because of their internet trading. It is fair to say that most problems relate to supplies of services rather than goods, and usually when there are three or more parties involved in a deal. I will look at some practical challenges and consider if HMRC is at the top of its VAT game on this important subject.

I recently dealt with a query about the VAT treatment of fees earned on a website, linked to the hiring out of expensive handbags owned by third parties. You can probably imagine the scene: a woman is going to an upmarket wedding and wants a handbag on her arm that will create a big impression: why should she pay £1,500 to buy a handbag when she can hire one for the weekend for £50? It makes commercial sense.