On 10 December 2020, HM Treasury (HMT) published a call for evidence on the so-called “sharing economy”6 and VAT. The move has been described as a potential tax raid on the now household-name businesses facilitating everything from taxi rides to short-term accommodation. HMT cite research suggesting that, by 2025, the total value of sharing economy transactions could reach £140bn.

The document looks, in particular, at digital platforms acting as agent, facilitating the supply of services between unconnected parties. With a nod to the types of businesses that are in scope, it talks of services that take the form of individuals hiring out their labour, and / or renting out their assets, in return for consideration. A key question posed by HMT in their call for evidence is whether current VAT rules applicable to an agent-principal arrangement are fit for purpose in the context of these types of digital platforms. One proposal for comment is that such digital platforms should be required to themselves account for VAT on supplies made by the underlying service providers to consumers.

The primary concern identified centres on service-providers who are not VAT-registered (whether due to falling below the current VAT registration threshold or not being “in business”). HMT express the view that over time these types of service-providers will provide an even greater proportion of total services than they do currently. This allows customers to receive services without suffering the usual extra VAT charge due on the supply. In the government’s words, this does not currently provide for fair competition and a level playing field between business in the sharing economy on the one hand, and more ‘traditional’ businesses on the other.

The document also addresses digital platforms based outside the UK, and the potential for lost VAT revenue under existing VAT place of supply rules (again, due to the fact that many underlying service providers are not VAT-registered and are therefore not required to apply the reverse charge VAT treatment on services supplied from outside of the UK).

Responses must be sent to HMT by 3 March 2021

The call for evidence can be viewed here.