HMRC introduces the new rules for online business

Today the digital economy presents the new challenges for the tax authorities. Gig economy allows millions of online business across the globe partially or in full to hide their real profits from revenue authorities.

In 2020 all those challenges have been successfully addressed in the new OECD reporting framework (i.e. Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy, hereinafter “MRDP”). The MRDP is aimed to establish the obligation of digital online platforms to share the information they have about online sellers to the respective tax authorities. In particular, the focus of this exchange is on the income of sellers obtained via online platforms.

The UK government amongst the first announced the full implementation of MRDP for the digital platforms operating in the UK. The exchange obligation becomes effective starting from January 2023. Currently, the process of consultation is opened for the major stakeholders as Uber, Amazon and others. Since MRDP contains a lot of optional elements, online giants are welcomed to express their opinion. The public consultation will last till 22^nd October 2021.

It is already estimated that the implementation of MRDP potentially can affect up to 5 million British firms. On the other hand, HMRC persuades that the new reporting model should significantly increase the revenues in the UK’s budget.

The scope of online services affected by the new exchange rules is quite broad comprising food delivery, transport services, freelance work etc. To get an exemption from the reporting scheme a potential online seller should fulfill a two-fold condition. Firstly, the number of sales via online platform should not be more than 30 in the reporting year, and, secondly, the yearly income generated via online platform should not exceed 2 000 pounds. Thus, HMRC exempts only private individuals and small start-ups performing occasional sales online.

HMRC states that exemption from the new reporting obligation can also be granted to the online platform, provided it can prove that:

• the business model does not allow sellers to obtain any profit or consideration via online platform; OR
• the sellers operating through the online platform can be exempted from the reporting scheme. In other words, each online seller should not generate more than 2 000 pounds and 30 active sales annually; OR
• the income of online platform for the previous year is less than 1 million euros.

Astra Trust team monitors the public consultations. Should you have any questions, do not hesitate to contact us.