In the Spring Budget 2021, the Chancellor confirmed that the UK would be adopting the OECD’s reporting rules for digital platforms, which require websites and apps providing online sales platforms to report the incomes of sellers to the relevant tax authorities.

The UK has been the first country to set out how it may implement the OECD’s requirements, with HMRC launching a consultation on 30 July.

ICAEW is supportive of the proposals in principle but, as so often in tax, the application of the rules raises many concerns and could lead to considerable burdens being imposed.

After examining the proposals, ICAEW’s Tax Faculty has raised concerns about the level of responsibility being placed on digital marketplaces and reiterated its calls for a single tax identifier and that for these proposals to work the UK would need to change the tax year end from 5 April to 31 December.

“We are concerned overall that a burden is being placed on platform operators that they are unlikely to be qualified to deal with,” the faculty writes. “For example, asking operators to determine the residence status of sellers or providing sellers with guidance on their tax obligations will inevitably lead to mistakes and misleading information being given.”

It concludes: “HMRC must take primary responsibility for management of the UK taxation system and not rely on unqualified third parties to do this for them."

Data relevance and accuracy

The OECD rules cover income related to the sale of goods and personal services (such as food delivery, freelance clerical work and taxis), as well as the rental of accommodation and transport.

Under the rules, digital marketplaces must report income arising in a calendar year to HMRC and the sellers on 31 January following the year end. In ICAEW REP 103/21, ICAEW argues that for income arising from 1 January until the end of the tax year (5 April), reporting that on 31 January the following year will be too late for UK sellers to check against their tax returns as that is the date by which they must be filed.

It states: “While the proposed regime will help to make data more readily available to sellers and tax authorities alike, we are concerned that the timing of that data may not be entirely compatible with helping either party to manage their respective responsibilities.”

The faculty also raise concerns over the complexity of reporting accurate sales income data, highlighting that often such income is received at a different time to when the goods are delivered or the service is performed. Furthermore, in retail and in the holiday rental sector refunds are commonplace.

“This means that there may be mismatches across different quarters or even different tax years which could cause tax authorities to raise unnecessary enquiries when the information they receive does not match up with that reported in sellers returns,” it warns.

Easing the burden

The OECD proposes an exclusion from reporting for platforms with sales below €1m. The faculty urges that, at least initially, this exclusion should be increased to €5m, arguing that the €1m limit is likely to impose disproportionate compliance burdens on smaller platforms.

It also recommends that the exemptions for reporting on individual sellers are also increased. The consultation sets out that reporting would only be required for those that complete 30 sales totalling €2,000 per year. ICAEW suggests this is increased to 100 sales and €10,000 per year.

In REP 103/21, the faculty also highlights concerns over digital platforms ability to accurately identify the residence of sellers, the need for data to be supplied in homogenous formats (this is particularly important for sellers using multiple platforms) and the importance of ensuring income for jointly-owned properties is accurately attributed.

• Read ICAEW REP 103/21 in full.
• See HMRC’s consultation: “Reporting rules for digital platforms”.
• “Digital marketplaces to report sellers’ incomes to HMRC as early as 2023” (Tax News, 4 August 2021)