We have been campaigning against VAT Fraud by Overseas Online Retailers since 2014. 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.
In April 2017 we helped The National Audit Office carried 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 HMRC’s role in administering the UK VAT system, including managing and reducing risks to the collection of tax revenue.
We raised our concerns with the Public Accounts Committee. On 13 September 2017 the PAC had a public hearing on Tackling online VAT fraud and error inquiry with the heads of HMRC, eBay and Amazon. The National Audit Office is now putting another report together on the findings from the hearing.
The number of overseas online retailers who have registered for VAT has risen from 700 at the end of 2015 to 17,537 at the end of August 2017. Amazon say they have 23,000 overseas online retailers using their UK warehouses. HMRC have only issues 399 notices to Amazon & eBay.
HMRC must up their game and ensure that the 17,537 overseas sellers are fully audited and pay the VAT on all their previous sales. HMRC must also ensure that the 6,500+ non compliant overseas retailers using Amazon warehouses in the UK are caught and removed.
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!!
There are still 1000’s of Overseas Online Retailers committing VAT Fraud on eBay & Amazon. HMRC is failing to stop this from happening. 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.
HMRC have allocated £22.5 million over the next 5 years to tackle the fraud.
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
HMRC must seize the £100’s of millions, if not £billions of VAT evaders stock that is stored Amazon warehouses in the UK. As yet HMRC have yet to confirm any stock has been seized.
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
Online marketplaces are taking commissions and making profit from every fraudulent transaction where VAT is being evaded. Online marketplaces have made £billions from VAT Fraud.
HMRC must recover the evaded VAT from the profits the online marketplaces are making from fraudulent transactions.
Fulfilment house & supply chain liability
Fulfilment houses such 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.
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.
Investigate & prosecute the criminals involved in the supply chain
£27 billion of VAT free stock doesn’t simply appear in UK fulfilment warehouses, such as Amazon, without a corrupt supply chain being involved. HMRC must take action against the organised criminals involved in the supply chain.
Removing VAT evading retailers 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.
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.
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.
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 states companies must display a valid VAT number registered to their full company name online.
However the directive does not apply to Overseas online retailers with stock in the UK. This is NOT right. Clearly the Electronic Commerce (EC Directive) Regulations needs to be updated. 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.
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.