UK government to toughen stance against online VAT fraud

The government’s Public Accounts Committee criticised HMRC last month for their undue cautiousness in pursuing ‘fraudsters’ who fail to pay VAT when selling goods online. Whilst major online marketplace sites Amazon and eBay have said they are working together with HMRC to tackle the issue, the companies are also currently raking in extra profit, with an estimated £1.5 billion lost from the tax not being charged on sales made in the UK by third-party sellers.

The problem has been exacerbated in recent years through overseas companies, looking to provide next-day delivery, keeping a portion of their stock in warehouses based in the UK. The sellers are required by law to charge 20% VAT on goods dispatched from within the UK, but many have simply not been doing so. The chair of the Public Accounts Committee, Labour MP Meg Hillier, has said that “the response of HMRC and the marketplaces where fraudsters operate has been dismal”, and described the tax fraud being carried out online as “hugely damaging” for UK taxpayers and businesses.

According to the committee’s report, tax revenue has been reduced and genuine UK firms have been undercut because of this. It’s likely that the situation will see further complication in the future, thanks to the uncertainty over trading and customs following the UK’s impending exit from the EU.

Whilst both Amazon and eBay have stated they do take action against such fraudulent sellers on their sites, the committee’s report stated that it was “bewildering that these big companies have taken such little action to date” and that these and other online companies “continue to profit from fraudulent activities taking place on their sites” through the commission they charge sellers.

In response to the committee’s findings, HMRC stated that new rules to hold online marketplaces responsible for unpaid VAT were introduced last year. It said that this had already resulted in ten times as many VAT-registered sellers on the sites, leading to an additional £875 million worth of tax being collected.

The report made three key recommendations: that HMRC should establish an agreement with online marketplaces by March 2018 to work to resolve the issue; that non-EU sellers dispatching goods held in the UK should be required to provide a valid VAT number; and that HMRC should use its existing powers more extensively in order to “inject more urgency” into its handling of the matter.