VAT Split Payments

Following the issue of a Request for Information on 16/07/2021, His Majesty's Revenue & Customs ("HMRC") are considering running an Innovation Partnership with a single or multiple suppliers for the development of a proof of concept for the extraction of VAT from payments ("Split Payment") on real-time payment channels and the connected provision of maintenance and consultancy services to (i) maintain the proof of concept over a specified period of time and (ii) to educate the market and policy makers on how the proof of concept works (the "End Services").

This initiative proposes a first potential use for Split Payment in the UK tax sphere. A successful proof of concept could in turn underpin a positive investment appraisal case within HMRC. Our current focus is solely on testing the technical feasibility of Split Payment, but this is a necessary step if HMRC are to quantify the prospects for potential use in tax compliance. Such use may also help in future efforts towards tax modernisation including automated software links between businesses, payments intermediaries and HMRC, and could further smooth and ease taxpayers' experience of tax administration and help them get their VAT right.

Seeking to find a mechanism through which VAT is collected from all overseas supplies of goods and services is part of HMRC's commitment to uphold fairness in the tax system. This aligns with HMRC's strategic objective to 'maintain taxpayers' consent through fair treatment and protect society from harm'.

HMRC are considering launching a procurement procedure in January 2023. However, in advance of any procurement, we would like to undertake further market engagement with interested suppliers, including those from the financial industry and FinTechs, to seek views, among other things, on the proposed procurement process and outline technological requirements for a proof of concept focused on Split Payment, specifically to address VAT non-compliance by non-UK sellers of goods and services.

If the proposed procurement is undertaken, we are interested in solutions that are used or are capable of being used in the payment ecosystem.