His Majesty Revenue and Customs (HMRC), following a bid process, have awarded a contract for the development of a Proof of Concept Project (PCP), within a 18 month period, in order to assess the possibility of a future implementation of a Split Payment Mechanism (SPM), by which, in each and every transaction – within the Value Added Tax (VAT) scope and paid by the use of a debit/credit card, through bank account transferences or by the use of digital wallets – the sum referring to the taxable amount (price) will be directly sent to the supplier, whereas the amount related with the (charged) VAT will be immediately remitted to the tax authorities.
However, it must outlined that, in order for the SPM to be effectively implemented, the (future) legal scheme will have to activate a set of rules/guidelines, concerning the cooperation of the so-called Payment Service Providers (e.g., banks, digital wallets providers, etc.), in order to make use of their existing messaging services (and also, seeking to understand its interoperability with the existing payment and VAT systems, without excessive interference or slowing down of payment procedures).
If this option is not available, HMRC has declared its intent to search other courses of action, such as product codes or e-invoicing.
The PCP will be grounded in three phases:
- Phase 1: Establishing if existing payment systems can identify properly in-scope transactions;
- Phase 2: Determining if a seller is VAT compliant from payment data;
- Phase 3: Establishing what technology solution could determine/assess the correct VAT, prior to a transmission out of the UK.
It should be noted that the use of SPMs has been pondered by a variety of States, particularly in the European Union, having been already implemented in Italy, Poland and Romania, in a non-harmonized fashion.
In reality:
- In Italy, the local SPM only applies to goods and services supplied to public bodies and certain major companies;
- In Poland, the SPM – being merely optional – allows consumers to pay the full amount of the transaction to a bank, which then splits the payment into the net amount (remitted to the supplier) and the VAT (remitted to the nominated VAT account);
- In Romania, the SPM is compulsory for businesses that have gone beyond the limits set on outstanding VAT payments.
To keep up with HMRC’s SPM policy, please refer to the following website:
https://www.contractsfinder.service.gov.uk/Notice/ab293777-e8ff-4931-9fc9-426250575ae2
Pedro Costa Monteiro
November 2023