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.
Ten of thousands of Overseas Online Retailers have been committing VAT Fraud on eBay & Amazon for years. Even with the latest Autumn 2017 Budget announcement, HMRC are still way behind the curve on what needs to be done. The situation is so out of hand now that even the VAT evaders are finding it impossible to compete because there are so many of them on Amazon & eBay.
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 has only issued 399 notices to Amazon & eBay since records began. At HMRC’s current work rate it could take over 25 years to audit all the sellers involved. HMRC must up their game and ensure that all overseas sellers are fully audited and pay the undeclared VAT on all their previous sales.
ALL non compliant overseas retailers using Amazon Fulfilment and other fulfilment warehouses in the UK MUST HAVE THEIR LISTING PERMANENTLY REMOVED, ALL THEIR STOCK SEIZED & PAYMENT ACCOUNTS FROZEN.
Currently VAT evading Overseas sellers on Amazon are getting their stock sent back to them and are allowed to withdraw all outstanding funds from their payment accounts, setup a new account and send back their stock to Amazon without paying any of their evaded VAT!!
HMRC should take a leaf out of the Germany Tax office book, who have seized all assets of Chinese sellers who are under investigation, including freeze all funds in their Amazon account and confiscating their inventory in Amazon FBA.
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.
IMPORTANT INFORMATIONIf you are from a tax office in Europe and looking for further information on VAT evading overseas seller accounts on Amazon or eBay please contact us here. We can provide you with tens of thousand of overseas seller account details that we have not published on our website.
Philip Hammond Autumn Budget 2017
Our campaign has now pressured the UK Government to introduce stricter legislation to prevent VAT Fraud on the internet. Introduced in the Finance Bill in November 2017 the legislation makes online retailers such as eBay and Amazon liable for VAT fraud that they know or should know is taking place and it also ensures that VAT numbers of Third Party Sellers are listed. However much more needs to be done (such as confiscating stock and removing fraudsters listings).
HMRC have for many years failed to pursue strong enforcement where the existence of fraud has been obvious.
Public Accounts Committee – Tackling VAT fraud and error
We worked with the Public Accounts Committee providing evidence for the hearing. On 13 September 2017 the PAC had a public televised hearing on Tackling online VAT fraud and error inquiry with the heads of HMRC, eBay and Amazon.
We submitted several written evidence documents to the PAC which are available online.
The National Audit Office
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.
Panorama – The Billion Pound VAT Scam
We worked with the Panorama team for several months helping provide evidence about the Online VAT Fraud. The program “The Billion Pound VAT Scam” was televised on 27 November 2017 and can be viewed on iPlayer until 27 September 2018.
Online traders who evade VAT are forcing British companies out of business and costing the taxman more than a billion pounds a year. Reporter Richard Bilton sets up his own business to test what checks are made to stop the tax cheats exploiting the UK.
The £1.5 Billion VAT Gap
In March 2015 we wrote to David Gauke MP reporting the £1.5 billion Online VAT Fraud. At the time David Gauke MP was completely unaware of the scale of the fraud. We received a reply on 16th March 2015 saying that HMRC had raised £0.65million from their e-marketplace campaign. Exactly a year later the penny (£1.5bn actually) had finally dropped. It’s amazing what a year of campaigning can do!
Quote; 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).
Thanks to our supporters
We would like to take the opportunity to thank Public Accounts Committee, The National Audit Office, Lords, MPs, Professors of Tax Law, Economists, The Heads of VAT in the EU, The Guardian, Financial Times, Daily Mail, 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!!
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.
Seizing stock & removing VAT evading retailers from eBay & Amazon
HMRC must ensure that ALL non compliant overseas retailers using Amazon Fulfilment and other fulfilment warehouses in the UK HAVE THEIR LISTING PERMANENTLY REMOVED, ALL THEIR STOCK SEIZED & PAYMENT ACCOUNTS FROZEN. HMRC are not doing this.
VAT evaders are still able to shut up shop and start trading under a new company name the next day with the same stock, on the same highly ranked product listings without paying a penny of their evaded undeclared VAT.
Online marketplaces verifying seller business details & location
Since the online VAT Fraud crack down we have seen a new phenomenon with lots of VAT evading Chinese sellers pretending to be UK eBay Sellers by setting up new eBay accounts using false company names, UK addresses and no VAT numbers.
Because HMRC is not seizing overseas sellers stock & eBay does not verify any business details, a seller can simply setup a new account, continue trading with their old stock and continue evading VAT.
eBay and other Online marketplaces must fully verify all business sellers details. If they don’t HMRC must make the Online marketplaces joint and several liable for all VAT that has been evaded by these “ghost” business seller accounts.
Here is an example of a Chinese Seller called selfless.care pretending to be a UK seller, using a made up company name, an address that belongs to a post office and displays no VAT number. All sales are funnelled out of the UK via a Chinese Paypal account.
Joint and several liability for Online Marketplaces
Finally the government has made online marketplaces liable for any VAT fraud that it “knew or should have known” was taking place. Lets hope HMRC uses these new powers.
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 commissions online marketplaces make from each fraudulent transaction.
Fulfilment house & supply chain liability
Currently 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. HMRC are planning a Fulfilment house due diligence scheme that will be introduced in April 2018.
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.
VAT registration for overseas online retailers
Overseas online retailers are totally out of reach from prosecution by HMRC under the current laws.
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
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 ALL NON Complaint Overseas Retailers and has the systems in place to monitor sale data and future VAT returns.
Online marketplaces verifying VAT numbers
Many overseas sellers are using fake, bogus or VAT numbers that do not belong to them. 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.
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. 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.
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.
Collecting VAT from online purchases from overseas sellers at the point of purchase.
HMRC recently proposed that they should consider collecting VAT at point of sale from overseas sellers. This is the only way forward to stop £billions of VAT being lost. We fully endorse this proposal. Further information can be found at VAT: Tackling fraud on goods sold online – update on split payment.
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.