The £27 billion VAT Fraud

We have been campaigning against VAT Fraud by Overseas Online Retailers for 3 years now. HMRC’s own estimate of the fraud is £1.5 billion in lost VAT a year. This equates to £27 billion in lost sales revenue & additional taxes to UK businesses and the public purse in the last 3 years.

The majority of VAT evading Overseas Online Retailers we reported to HMRC 3 years ago are still trading and continue to evade VAT.

The National Audit Office in now carrying out an investigation “VAT evasion by overseas online retailers” looking at the risk of VAT (Value Added Tax) evasion by overseas online retailers. The investigation focuses on HM Revenue & Customs’ (HMRC’s) role in administering the UK VAT system, including managing and reducing risks to the collection of tax revenue. The report should be out end of April 2016.

We have now raised our concerns about HMRC with the Public Accounts Committee.

The government is now aware of the scale of the fraud.

David Gauke MP, Chief Secretary to the Treasury – 16th March 2016:
“This abuse has grown significantly and now accounts for £1-1.5bn of the total VAT gap. These overseas traders are unfairly undercutting all businesses trading in the UK, abusing the trust of UK consumers and depriving the government of significant revenue.” (Quote from HMRC Fulfilment House Due Diligence Scheme.PDF).

We would like to take the opportunity to thank all the Lords, MPs, Professors of Tax Law, Economists, The Heads of VAT in the EU, The Guardian, Financial Times, Daily Mirror, The Register, Tamebay and The BBC who have been instrumental in raising the awareness of our campaign and getting it firmly on the political agenda. Thank you!!

Our Campaign

Our campaign successfully pressured HMRC and the Treasury into introducing new laws in the Finance Bill 2016 to tackle online VAT Fraud, which included joint and several liability for online marketplaces; VAT: overseas businesses using an online marketplace to sell goods in the UK and a proposed Fulfilment house due diligence scheme.

However the new laws fall well short of what needs to be done and simply amounts to a chocolate teapot. HMRC say their policy creates third party liability is just an out and out lie.

There are still 1000’s of Overseas Online Retailers committing VAT Fraud on eBay & Amazon. Amazon are still offering fulfilment services to VAT Evading Non Compliant Overseas Online Retailers. HMRC is failing to stop this from happening. HMRC is now issuing VAT numbers to Overseas Online Retailers who have been evading VAT for many years rather than taking action against them.

Level the Playing Field

The situation has now got so out of hand that even the VAT evaders are finding it impossible to compete because there are so many of them on Amazon & eBay.

On 27th September 2016 we submitted a new list to HMRC of 600+ VAT Evading non UK sellers using Amazon to warehouse and fulfil their illegal stock. We are now waiting to see how quickly HMRC will take action with their new powers and the £22.5 million they have allocated over the next 5 years to tackle the fraud.

HMRC have failed to make a single prosecution for Online VAT Fraud in the past 5 years.

Until the playing field is well and truly levelled, we will carry on campaigning.

Below we have outlined what needs to be done:

Full Government Enquiry into HMRC

We would like to see a full government enquiry into HMRC failure in preventing Online VAT Fraud.

Seize all VAT Evaders Stock held in Amazon UK Warehouses

Amazon are by far the biggest company providing fulfilment services for VAT evading Overseas Online Retailers & UK Retailers. HMRC must seize the £100’s of millions, if not £billions of VAT evaders stock that is stored and dispatched by Amazon in the UK.

One of Amazon’s main UK warehouses is:

LTN1 Amazon Milton Keynes
Marston Gate Distribution Centre
Badgers Rise
Bedford
MK43 0ZA
United Kingdom

It’s just off Junction 13 on the M1. About 1.5 hours drive from HMRC HQ in London.

We also recommend hiring a very large van too.

Investigate & Prosecute the Criminals involved in the Supply Chain

This fraud is not just about NON Complaint Overseas Retailers failing to pay VAT on their sales. This is an organised criminal network all the way along the supply chain from when the goods are first collected from the Overseas Online Retailers warehouses in China.

£27 billion of VAT free stock doesn’t simply appear in UK fulfilment warehouses, such as Amazon, without a corrupt supply chain being involved.

We have recently provided HMRC evidence of a European wide criminal supply chain where goods are being declared at 0.5% of true value when being imported.  £billions is being lost in import VAT & Duty.

Amazon has a complete record of every single item, box, tracking number and delivery made to them from every NON Complaint Overseas Online Retailer. From this information it will be very easy to trace the supply chain right back to the shipping agents in China.

HMRC must recover all undeclared Duty & VAT from Overseas Online Retailers.

HMRC must take action against the organised criminals involved in the supply chain.

Removing VAT Evading Sellers from eBay & Amazon

HMRC must ensure that all sellers who have been found to be evading VAT have their eBay & Amazon accounts completely closed.

All VAT evading Amazon sellers must have all their product listings permanently removed from the Amazon website catalogue. This will stop companies from being able to simply shut up shop and start trading the next day on the same highly ranked product listings under a new company name.

Joint and Several Liability for Online Marketplaces

Under the new Finance Bill, online marketplaces will only become joint and several liable ONCE HMRC have spotted the fraud and reported the seller to the online marketplace. The online marketplace will then only become joint and several liable IF the online marketplace fails to remove the seller within 30 days. The online marketplace will ONLY become joint and several liable for any future fraud.

This is hardly the self policing system that is required and amounts to nothing more than an amnesty for the online marketplace.

HMRC does not have the resources to police it, having clearly shown a complete inability in police it in the first place.

This has now turned into a very expensive £billion game of wack a mole at the taxpayers expense whilst online marketplaces continue to profit from the fraud.

The government needs to make online marketplaces liable for any VAT fraud that it “knew or should have known” was taking place.

Online Marketplaces Profiting from VAT Fraud

The law states that nobody is allowed to profit from any fraudulent transaction. Online marketplaces are taking commissions and making profit from every fraudulent transaction where VAT is being evaded.

Online marketplaces are making £billions from VAT Fraud.

HMRC must recover the evaded VAT from the profits the online marketplaces are making from fraudulent transactions.

VAT Registration for Overseas Online Retailers

Overseas Online Retailers are totally out of reach from prosecution by HMRC under the current VAT Registration regulations. Overseas Retailers are safe in the knowledge they can simply disappear without paying any undeclared VAT and reappear under a new company without any prospect of HMRC prosecuting them.

The government must only allow Overseas Online Retailers to register for VAT who have appointed VAT representative in the UK who is liable of any undeclared VAT by the overseas retailer.

HMRC announced that 7,185 overseas retailers had registered for VAT in 2016. Our research shows that over 50% of these overseas retailers have registered for VAT via Chinese VAT Agents.

A VAT Agent is a company, normally an accountant, who handles an overseas retailers VAT returns and registration process. However a VAT Agent is not liable for any VAT fraud committed by the overseas retailer.

In addition to this when an Overseas Online Retailer registers for VAT they do not need to provide any identification such as passports, company incorporation certificate, company letterheads, a recent service bills and/or recent bank statements. You need more ID to collect a parcel from the Post Office than they need to register for VAT.

The current system is completely open to abuse and fraud. It needs to change.

Fulfilment House & Supply Chain Liability

Fulfilment houses such as Amazon are being allowed to fulfil orders for Overseas Online Retailers who are not VAT registered, who have not provided a VAT number and/or have provided a bogus VAT Number. Amazon Fulfilment do not verify or validate VAT numbers.

Amazon are not just an Online Marketplace, they are also a payment provider and fulfilment centre for VAT Evaders. They are an integral part of this fraudulent supply chain. Amazon says they have no legal obligation or responsibility to ensure VAT compliance even though they are the key part of the supply chain. Amazon Fulfilment are making £billions in profit from VAT Fraud.

HMRC are planning a Fulfilment house due diligence scheme that will be introduced in 2018. However this is a long way off and many UK businesses will have gone bust before this comes into force.

The government needs to introduce emergency measures to make all Fulfilment houses liable for being part of this fraudulent supply chain.

Recovering Undeclared VAT from NON Complaint Overseas Retailers

Since the Finance Act 2016 was announced in the March 2016 Budget we have seen a huge increase of overseas retailers who have now registered for VAT, but who have been committing VAT fraud for many years. In addition to this, many sellers are using fake, bogus or VAT numbers that do not belong to them. See case study here.

We have also learnt that many non UK sellers are now simply applying for VAT numbers, submitting fraudulent VAT returns and continue to commit VAT Fraud.

HMRC need to ensure it recovers all undeclared VAT from NON Complaint Overseas Retailers and has the systems in place to monitor sale data and future VAT returns.

Online marketplaces Verifying VAT Numbers

Online marketplaces must be forced to fully verified sellers VAT numbers with supporting documentation including copies of VAT certificates, company incorporation certificate, company letterheads, a recent service bills and/or recent bank statements.

The sellers company name & VAT number should only be editable by the online marketplace at the request of the seller.

Electronic Commerce (EC Directive) Regulations 2002 – Displaying VAT Numbers & Business Information

This directive clearly states companies must display a valid VAT number registered to their full company name online.

However we have learnt that HMRC doesn’t have the authority to enforce it. It is enforced by DCMS. We contacted DCMS with regards to why they have not enforced it with non UK Sellers using online marketplaces and we received this response:

“Where the sellers are not established in the EU/EEA, whilst liable to be VAT registered for supplies of goods made in the UK, they are not subject to the obligations of The Electronic Commerce (EC Directive) Regulations 2002 and neither does the online marketplace operator have any obligation to display the VAT number of those who use their services to sell goods.

As there has been no infringement of the Regulations by the overseas non-EU sellers, there is no scope for issuing a take down notice to the hosting site.”

Both HMRC & DCMS took legal advice on the directive. We made a freedom of information request to DCMS to see the advise they were given, but it was refused.

It is quite unbelievable that this Law isn’t been enforced by anyone. If this LAW was enforced it would have stopped the fraud in the first place.

UK sellers & non UK sellers now have different rules, even though they are selling on the same online marketplace, warehousing stock in the same warehouse and selling to the same UK customers.

This is NOT right. All Non UK companies must display a valid VAT number registered to their company name on all online marketplaces BEFORE they sell products located in the UK.

Displaying Seller Location, Stock Location, Price & VAT

Online marketplaces must clearly display the location of the seller and their stock on all products page next to the “buy now” button and throughout the checkout process. Prices must clearly display whether it includes or excludes VAT.

If a product is located outside the UK, consumers must be told that import tax and duty will be payable on receipt of goods.

Currently Amazon make it very difficult for a consumer for know who or where the seller and product are located. Consumers are being hood wicked into purchases products from sellers outside the UK who market themselves with shop names like “UKBestDeals” when actually the seller is Chinese. This is costing UK businesses £billions in lost revenue.

Consumers must be given the ability to filter search results on online marketplaces by Seller location; UK, EU & Rest of World. Consumers have the right to know who and where they are purchasing from.

Prices of all product must clearly state if the price includes VAT. Prices of good that are located outside the UK & EU must clearly state that VAT & Duty will be due on delivery.

In addition to this returns & refund information must be clearly displayed to consumers. Consumers need to know before they purchase an item from a NON UK seller where the item will be returned to if a refund is required.

PayPal and eBay Business Seller Accounts

Currently an eBay business account can be linked to another company’s PayPal account. This allows an eBay business seller to link to someone else’s PayPal account and channel all their sales out of the UK without paying VAT or Tax.

eBay accounts must only be linked to PayPal accounts that are registered to the same business.

Scrap LVCR (Low Value Consignment Relief)

LVCR is a relief from VAT on goods imported into the EU with a value of £15 or less. Goods dispatched by Overseas Online Retailers from outside the EU to customers in the UK can be sold VAT free as long as they are valued under £15.

Overseas Online Retailers are abusing LVCR by under declaring the value of the goods so no VAT or Duty is paid.  We have evidence of goods being declared at 1% of true value by Overseas Online Retailers on Amazon and eBay. The scale of this fraud is huge; there are 1000’s of Overseas Online Retailers on Amazon and eBay distant selling into the UK.

TNT Bierzet Hub Belgium: 4500 declarations a day
61% Low value
39% High value
Only 9% of low value are destined for Belgium.

DHL Leipzig German Hub: 300,000 shipments a day
Majority: Low value destined for other EU countries.

Destination based VAT System

The UK must adopt the proposed changes to the EU VAT system.

The new system means that VAT is paid to the country where the customer is located, including distance sales.

If an Overseas Online Retailer dispatches goods from China to consumers in the UK, the Overseas Online Retailer will have to register for VAT. They will then have declare and pay the VAT and Duty to HMRC.

This could generate £billion of extra revenue for the UK. VAT Fraud could be easily spotted by requesting retailers sales data from Online Marketplaces.

  • Nathaniel

    Well done, It is good to see that someone has the brains and ability to look into this type of fraud and come out with the truth. Ebay and Amazon are aiding and abetting criminal activity on an industrial scale to the detriment of the UK and the EU, while Paypal are money laundering from the UK and EU to Hong Kong.

  • Nev

    Great website – I can’t believe HMRC just sit back and watch £billions to be laundered out of the UK when the UK public purse is being cut in every direction.

    Totally unbelievable.

    Its not exactly difficult to spot VAT fraud on eBay & Amazon….

  • http://ebay Brian

    Here is another good example on ebay, username saleall2100 with a turnover of £2,000,000 openly admit not VAT included. So that is another £400,000 of lost VAT every year. I wonder how many new nurses and Doctors that would pay for.

    • vatfraud

      Yes – £158,569.97 of sales in May on eBay.co.uk – that’s about 1 nurse a month in VAT Fraud

  • Sandoz

    Thanks for this action, waiting for the petition to be online.
    It would be a good idea also to provide instructions how we best report VAT evading sellers. Each seller should send an official letters to the HMRC, if they receive tons of complaints they cannot further ignore this.

  • Dave

    petitions website is now open again! lets get this show on the road! Ive got some sellers on amazon that i would like to provide if you require, mainly chinese but UK as well.

  • Stew

    The economy and the government are losing NOTHING. The government just overtaxes and steals the money from the public REGARDLESS whether or not China is evading taxes. That little amount of money will save NOTHING. You honestly believe in your little mind that 1.4 trillion could EVER be paid off? Man are you people brainwashed! Any amount paid by the debt slaves go to BANKERS AND INTEREST YOU IDIOTS!

    • vatfraud

      I’ve just made all my staff redundant & lost my warehouse because my company can’t compete on a level playing field. My company pays VAT. My competitors evade VAT.

      My competitors are laundering money out of the UK into China via Paypal.

      Sorry for being an idiot, but I’m not sure how the UK economy and the government are losing nothing.

      I do agree we have been turned into debt slave by the government

  • Serge

    Every action has a consequence…

    With recent bashing of tech companies and their tax arrangements, don’t be too surprised if the likes of Amazon and eBay just open the flood gates (which they have) and let the relevant in-country tax authorities be overwhelmed sorting out the labyrinthine VAT arrangements across the EU.

    Hats off to the Chinese for using this loophole…if the tables were turned…we would be doing the same!
    Can’t really blame eBay, Amazon and Paypal either, since they they will do what they can get away with…change the rules…great, another tax hoop to jump and another loophole in the process!

    No matter which sector you look at, the Chinese have, and always will, play the long game…generational with elephantine memories of past mercantile injustices.
    So when you put it in that context, VAT = Opium payback!

    Your campaign is gallant and noble, however, it is misguided since your not going to get much traction from HMRC, until the political will is changed on this front. As far as most Western governments are concerned it keeps inflation low and widens the pool of “stuff” ever larger with each passing season – modern day bread and circuses!

    Better off expediting your energies on the political front and reduce/eliminate the VAT tax rules imposed by Europe…Keep It Simple Stupid!

  • vatfraud

    We’ve just installed a new Disqus discussion system to get your views on the Petition & what needs to be done to Stop the VAT Fraud on eBay & Amazon by Chinese, NON EU & UK businesses

    • Physiocrat

      What needs to be done? Scrap VAT.

  • Dipen D

    I have reported the method and hundreds of sellers to HMRC but they are not interested and have done absolutely nothing since I reported them over 2 years ago.

    The Fraud:

    (1) Chinese sellers send their goods to a UK fulfilment warehouse. Let’s
    say the goods are valued at a £100,000, they will declare the value at
    £10,000 so they will pay input VAT of £2,000 rather than £20,000.

    (2) They then sell these goods on ebay (same is true with Amazon) and
    when they are sold the sales revenue goes to their HONG KONG paypal
    accounts. However, some sellers are clever and have UK paypal accounts
    as well and will show some revenue in their UK paypal account.

    (3) So, in our example above, let’s say the final sales value for the
    £100,000 of goods is £200,000 the Chinese seller will pay VAT on, say,
    £20,000 of sales shown in their UK Paypal account and will pay NO VAT on
    the HONG KONG paypal account which has the £180,000.

    (4) From the HMRC’s point of view, this is what’s happened:

    (a) Input VAT of £2000 was paid and reclaimed by the seller

    (b) Output VAT of £3,333 is paid to HMRC on the sales of £20k in the UK paypal account

    (c) HMRC is defrauded out of £30,000 of VAT on the £180,000 of sales from that went into the Hong Kong Paypal account.

    Competition:

    Remember, as a UK seller it is impossible to compete against the Chinese
    sellers as they make an additional 20% margin on what a UK seller would
    make.

    Ebay’s Response:

    “We know about this”. Remember, ebay are the ONLY ones not losing out on
    this because they get their ebay selling fees and they also get their
    paypal fees and if anything Ebay is facilitating this whole fraud for
    the overseas Chinese sellers.

    HMRC’s Response:

    This was interesting and I will summarise how they responded when I spoke to them on the phone:

    We are aware of this fraud that is happening and are working with ebay
    If you give us names of sellers this could be a threat on your life
    as the sellers may come after you so do this at your own risk !
    We cannot work with you on this as everything we do is confidential
    In a nutshell, it seems like the HMRC would prefer to go after
    bigger guns like corporates and UK sellers than to pursue large ebay
    sellers who are defrauding them of VAT. I provided the HMRC and eBay with the sellers evading VAT and, as you may have guessed, they are all still trading on eBay and the HMRC have just ignored my evidence.

    • Samy Alsh

      hey, interesting, how do you find out on amazon who is paying or who is legit registered ? thanks

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  • Physiocrat

    All this shows is that VAT is not fit for purpose. It is time it was scrapped.

    If you take into account the costs and losses, getting rid of VAT would leave a gap of, at the most, one-third of the headline figure collected. Ditching VAT could even leave the exchequer better off. Swedish experience of cutting VAT from 25% to 12% in the restaurant sector in 2012 was that thousands of additional jobs were created.

    The losses due to VAT come under four main headings.
    1 Churning
    2 Administration and compliance
    3 Deadweight losses
    4 Abstraction from other taxable revenue streams.

  • Katrina

    A much simpler option would be to make the online marketplace responsible for collecting the VAT and paying it over in all cases, even for big established UK retailers that do currently comply with the law.

    • Katrina

      Here is how it would work:

      Amazon would declare it as a sale on their own VAT return, along with all the stuff they sell on their own account.

      If the retailer has a UK VAT registration number, they would charge VAT on the payment Amazon makes to them, about 75% or so of the selling price, which Amazon would claim back, and the retailer would declare this own their own VAT return. Retailers from other EU countries would use Amazon’s VAT number to treat it as a reverse charge sale, declare it on their EC sales list to their local tax authority, and not charge VAT on it. Retailers from outside the EU would not have to concern themselves with VAT.

      Basically it would be the same as if they sold the goods to Amazon and Amazon sold them on to the end customer.

  • John Paul

    The ebay website has been designed to disguise seller fraud. Initially much of it came from abroad, but now it also has to include the thousands and thousands of individuals who are based in the UK and who are posing as ‘private sellers’ who rather than just selling the odd item of clothing every now and then, has turned it into a daily business!

    Anyone using the ebay app will soon discover that on trying to ascertain the sellers business details from the listing, the webpage will immediately shut down to prevent this from happening.

    And if ebay really wanted to be open and above board then why have they now disguising fraud further even when it comes to seller feedback.

    How can a trader obtain a 100% seller rating on their listing and yet on checking further, have dozens of negative written comments from dissatisfied cusomers who have paid, but never received their goods and of those who have, received nothing more than faulty and dangerous items? Ebay has known for years this has been happening and has done nothing to stop it so perhaps ebay themselves should be directly held liable for all loss of VAT.