Following consultation in 2021, the government has now published draft regulations to implement the OECD Model Reporting Rules for Digital Platforms (Model Rules) and is seeking technical comments until 13 December 2022.
The new rules will require operators of digital platforms to collect, verify and report details of sellers on their platform to HMRC and provide a copy of the information reported to sellers. HMRC will then exchange the information with other tax authorities (in line with a multilateral agreement signed on 9 November 2022 with 22 other jurisdictions) and use it to detect and address any non-compliance by sellers. The rules will apply from 1 January 2024, with first reports due no later than 31 January 2025.
The draft regulations further detail the actions digital platforms will be required to take to comply with the rules, as well as the penalties (and appeals process) for non-compliance.
Actions required by digital platforms
- establish and maintain procedures to collect and verify seller information (including property listings, if applicable)
- apply the due diligence provided for in the standard rules
- maintain a record of all compliance actions taken and information gathered for a period of five years from the end of the reporting period to which they relate
- notify HMRC that they are a reporting platform operator no later than 31 January following the end of the first reporting period, and
- report to HMRC (via an electronic reporting system) the required information no later than 31 January following the end of the reporting period and provide a copy to sellers.
A Platform Operator is not required to report to HMRC where it reasonably believes that another Platform Operator will report the required information to HMRC or another tax authority.
An “excluded platform operator” exemption also applies to operators whose overall business model is such that they do not allow sellers to profit from payments received or who do not have sellers to report. In either case, HMRC must be informed of this fact. Similarly, platform operators must inform HMRC if they choose to apply the due diligence procedures to only “active” sellers.
Penalties for non-compliance
Unless HMRC is satisfied that there is a ‘reasonable excuse’ for a particular breach (which would not include insufficient funds or relying on another person to do something), the following penalties are apply:
- failing to report or comply with a request from HMRC within the time allowed – up to £5,000 plus a daily penalty of £600 if the breakdown persists
- failing to comply with record keeping requirements – up to £5,000 for each reporting period
- not informing HMRC that they are a reporting platform operator or an excluded platform operator – up to £1,000
- non-application of due diligence procedures – up to £100 for each seller in respect of whom the reporting platform operator does not apply the procedures, and
- make an incorrect or incomplete return to HMRC – up to £100 for each seller subject to reporting.
Penalties imposed under the regulations are due and payable within 30 days of the assessment notice issued by HMRC. The regulations also provide for a right of appeal against sanctions and the appeals procedure.
Prior to the publication of the draft regulations, the government had indicated that the responses to the initial consultation supported its proposals, although there was a range of opinions on some of the specific questions posed.
Regarding the scope of the rules, most respondents supported the goal of minimizing burdens on smaller, low-risk platforms and suggested that there should be an exclusion for “small ” platforms that facilitate the provision of services for total payments of less than 1 million euros. However, there were also concerns that these exclusions could be exploited, create competitive disadvantages or undermine anti-fraud policy objectives. After further consideration, the government concluded that the benefits of a relatively low threshold for excluding small platforms would not outweigh the increased burdens and uncertainty it would create, and therefore decided not to adopt the optional exclusion for “small” platforms.
The draft regulations, however, include an exclusion for platform operators whose set of business models is such that they do not allow sellers to profit from payments received or who have no sellers to report. They also limit the scope of the rules when operators choose that the due diligence procedures concern only “active” sellers. These measures could still be useful in reducing the increased burden for smaller, low-risk platforms and aligning UK rules with similar reporting rules introduced in the EU (DAC 7).
HMRC has offered to meet with the digital platforms to discuss the technical issues raised by the draft regulations and promised to provide clear and comprehensive guidance on the new rules. Details are also expected on the electronic reporting system that the platforms will have to use.
With the final regulations only coming into force in 2024, digital platform operators should take the opportunity to review their due diligence procedures to ensure they meet their new obligations.