|Update: HMRC have now published draft regulations (18 October) incorporating OECD’s Model Reporting Rules for Digital Platforms. Read our latest article here.|
The OECD’s Model Reporting Rules for Digital Platforms are to be adopted in the UK, requiring platform operators to report details of the sellers using their platforms, including the income generated by those sellers, to HMRC. The new rules will also require platforms to provide annual reporting to sellers to help them comply with their own tax obligations. Platforms are expected to start collecting this information from 1 January 2024, with first reports due by 31 January 2025.
On 20 July 2022, the government released its consultation outcome on the implementation of these rules. This article outlines the key takeaways of the consultation.
The rules will apply to platform operators whose platforms connect sellers with users to facilitate the sale of goods and/or services, including transport rental. Unlike DAC7 (see below), it is understood the UK’s rules will only apply to UK tax resident platform operators but this needs further clarity. All platforms in scope must comply, except for: (1) platforms that disallow sellers from making a profit, (2) platforms which do not have reportable sellers, and (3) platforms who only host ‘occasional sellers’- ie those with less than 30 sales, receiving no more than €2,000 in a reportable period. Reportable sellers will include sellers resident in the UK or in another reportable jurisdiction. For property rentals, UK platform operators will have to report information about sellers who rent out property in the UK or in other participating jurisdictions.
An earlier proposed exclusion for small platforms (those which make under €1 million per year) will now not be available given the administrative difficulties anticipated for such platforms in determining whether the exclusion applies in the first place
The onus falls on platforms to ensure that sellers provide the correct information, with a penalty of up to £100 for each inaccurate, incomplete or unverified seller record they submit (including where the platform has failed to keep a record of the steps undertaken for due diligence purposes). There will also be an initial penalty of up to £5,000 and continuing penalties of up to £600 per day if platforms do not meet the 31 January deadline. The maximum penalties will be reduced for a number of mitigating factors and no penalty will be charged if the platform has a reasonable excuse for failing to comply with the requirements or for making an error or omission. The response document indicated that HMRC is likely to take a ‘light touch’ approach initially; minimising penalties while platforms get accustomed to the rules.
Concerns about carrying out due diligence was a key theme, with respondents raising questions around the enforcement of data collection and uncertainty of verification, especially for existing sellers. With no obligation on sellers to provide information, platforms will need to contract with sellers directly to obtain their Tax Identification Number (TIN), date of birth and other basic seller details.
It was clear that many platforms expect the cost of compliance to be significant, with money to be spent on hiring and training staff to implement the rules, updating contracts and policies, purchasing software to collect and validate data, verifying the collected data, and on the expertise to produce the reports in the required format.
The government floated the Government Verification System (“GVS”) as a means of minimising the burdens of verification. While unlikely to be implemented any time soon, the GVS may be helpful to reduce costs and avoid problems with asking sellers for sensitive personal details in the long term. In the meantime, the government has confirmed that it will include the option to use a third-party service provider or another platform to carry out the required due diligence checks. It is also expected that platforms will have the ability to nominate another platform operator to assume the reporting obligations on its behalf, which could assist with reducing the overall compliance burden for platforms that have two or more platform operators in the UK.
As expected, platforms argued that the UK’s regime should be aligned as closely as possible to the EU’s DAC7 regime (which is largely based on the OECD model rules but with a broader scope), in order to allow UK platforms potentially caught by both regimes to only report once to HMRC, as DAC7 is not limited to EU-based platforms. The UK government agreed, promising to minimise duplicated reporting by engaging with the EU to establish a consistent approach. How the rules will interact is keenly anticipated. For more insight into DAC7 see here and here.
It’s safe to say that there is further detail needed before the realities of the reporting rules start to take shape. The government has promised further clarification on respondents’ key concerns and DAC7, with more to come by late 2022 – watch this space. For the full consultation update, see here.