UK - Reporting Rules For Digital Platforms

From 2020 to 2022, the Organisation for Economic Co-operation and Development (OECD) published a series of guidelines regarding the reporting rules for digital platforms. In 2022, the United Kingdom (UK) was one of 24 countries worldwide to agree on the automatic exchange of income information derived through digital platforms.

In this overview of UK Digital VAT regulations in effect from January 1, 2024, concerning the reporting rules for digital platforms, we will cover details such as who is subject to these reporting rules, what needs to be reported, and whether there are similarities and differences between UK rules and those in the European Union (EU).

OECD Model Reporting Rules

The expansion of the digital economy and the surge in the usage of digital platforms for commercial purposes have imposed new challenges on Tax Authorities worldwide. Income generated for B2C cross-border transactions through digital services platforms such as marketplaces remains sometimes unknown to Tax Authorities. 

The OECD reporting rules for digital platforms aim to solve this issue by promoting tax compliance and international cooperation between Tax Authorities. This contributes to the additional supervision of digital platform operators and all sellers who use digital platforms to offer accommodation, transport, or personal services.

Under OECD reporting rules, platforms can be any software, website, or application accessible by users that allows sellers to connect with users regarding the provision of Relevant Services, which refer to renting immovable properties and providing personal services for compensation. 

When a digital platform signs a contract with sellers and makes all or part of the platform available to that seller, the platform becomes a reporting platform operator under these reporting rules.

Reporting Rules for Digital Platforms in the UK

The Guidelines issued by the UK's HMRC are a valuable source of information regarding digital platforms' reporting obligations. They provide information on what digital platforms are, what the reporting rules and obligations are, and what the deadlines and penalties for non-compliance are.

Generally, reporting rules state that entities involved in the work of a digital platform in the UK or managing it must collect, verify, and report data on sellers utilizing the platform to the UK's Tax Authority, or HMRC.

What are Digital Platforms in the UK?

The UK implemented the OECD definition of digital platforms and platform operators into its national legislation. Suppose a digital platform such as a website or app facilitates transactions between sellers and buyers and provides insight into how much compensation a buyer pays the seller for the supply of goods and services. In that case, that platform is considered a qualified platform under reporting rules.

These rules affect platforms such as JustEat, Uber Eats, or eBay and their sellers. In contrast, businesses that use websites or apps to sell their goods or services exclusively are not subject to these reporting rules.

However, in addition to qualifying as a digital platform, additional criteria are considered when determining whether a platform must report to HMRC.

Reporting Platform Operators In the UK

Digital platforms registered in the UK, or managed under UK law, or whose management is located in the UK are considered to be reporting platform operators. 

Once digital platforms determine they fall under the scope of reporting rules, they must report data on Relevant Services to HMRC on domestic and foreign providers from another country that implemented these rules and are selling goods or receiving payments for goods and services through the platform. These sellers are referred to as Reportable Sellers.

However, even when sellers meet these requirements, they may be excluded from reporting obligations. For example, companies that rent out their properties more than 2,000 times a year are considered low-risk sellers, and digital platforms do not have to report data on these companies. 

Relevant Services For Reporting

The UK VAT Digital regulations took over the definition from OECD on Relevant Activities. Still, they expanded and explained the term ‘personal service’ as a service ‘involving time or task-based work performed by one or more individuals at a user's request unless such a service is purely ancillary to the overall transaction.’

Therefore, personal services include taxi services, food delivery, copywriting, freelance activities, housekeeping services, and catering.

Residential, commercial, and parking lots are considered immovable property, and short-term and long-term rentals are subject to reporting rules.

Other relevant services are renting means of transport, which refer to both motorized and non-motorized vehicles, and selling goods.

Data Reported to HMRC

If sellers are individuals, digital platforms collect, verify, and report their personal information, such as first and last name, address, and national insurance number, to HMRC, together with data on their earnings from the supply of goods and services via the platform.

Similarly, when sellers are registered businesses, their business information, such as business name, address, and tax identification number, are collected, verified, and reported, in addition to income data.

Suppose digital platforms have access to or the possibility of collecting data such as the country in which the seller lives, the number of transactions paid to the seller, any additional fees, commissions, or taxes, and bank account details. In that case, they should report this data to HMRC.

Reports are submitted yearly by January 31 for the previous year, giving sellers and digital platforms time to collect and process the necessary information.

The digital platform must register through the HMRC online platform to send reports.

Penalties for Non-Compliance

Three penalties are provided depending on the type of offense committed. If digital platforms fail to inform HMRC that they are reporting or excluded platform operators, a fine of up to GBP 1,000 may be imposed. Failing to meet the reporting deadline may result in a penalty of up to GBP 5,000. However, additional penalties of up to GBP 600 per day may be charged by HMRC after the reporting deadline has passed and the report is not submitted.

Finally, if digital platforms do not ensure correct due diligence, penalties of up to GBP 100 might be imposed for each inexact record.

To comply with the UK reporting rules, digital platforms rely on sellers' cooperation in providing necessary data. If sellers refuse to provide needed information, digital platforms can limit access to their platform for such sellers or even prevent them from registering on their platform.

Reporting Rules for Digital Platforms in the EU

EU Member States agreed to implement similar rules on the EU-wide level by adopting Council Directive (EU) 2021/514, also known as DAC 7. However, there are some differences between the rules of the EU and the UK.

For example, the EU rules have a broader definition of the platform operator responsible for reporting, meaning that even if the platform operator is not based in a particular Member State, it might still be required to submit a report if it facilitates activities for sellers in that Member State. 

EU reporting rules for digital platforms affect non-EU digital platforms if sellers using the platform are residents of any of the EU Member States or if they rent out immovable property in an EU Member State for relevant activities.

Contrary to this, UK Digital VAT regulations have a slightly narrower definition. UK reporting rules apply only to digital platform operators who are tax residents of the UK or incorporated or managed in the UK.

Due to these rules, fewer digital platforms must submit reports to HMRC than EU Tax Authorities.

Conclusion

OECD reporting rules for platforms providing digital services are a means of achieving better tax control and may reduce administrative burdens for sellers on digital platforms. 

Nevertheless, digital platforms and sellers operating through multiple jurisdictions implementing OECD rules should be aware that each reporting rule, definition, or scope may differ slightly, as shown in the EU and UK definitions of platform operators.

Although digital platforms are mainly responsible, sellers should comply with reporting rules and regulations and cooperate with digital platforms to avoid potential consequences.

Source: OECD - Model Rules for Reporting by Platform Operators, HMRC - Reporting rules for digital platforms, HMRC - IEIM901510 - Personal Service, HMRC - IEIM901520 - Immovable Property Rental, HMRC - IEIM901500 - Relevant Activities, UK The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023, VATabout - EU - DAC 7 Compliance and Digital Platforms