With Brexit looming large the government needs to urgently put a plan into place and examine the effects that Brexit will have on Online Marketplaces, Overseas Retailers, Global Fulfilment, Distant Selling, Subsidised Chinese post, LVCR Abuse, VAT & the Split Payment model.
We propose that the government must:
Introduce VAT Split Payment model for ALL UK & NON UK online retailers.
Introduce a destination based VAT system for cross-border e-commerce, as proposed by the EU.
Stop subsidising Chinese post via UPU terminal dues.
Here is a copy of HMRC Notice to VAT evading sellers taken from Amazon forum :
New measures were introduced by HMRC for some businesses established overseas that are required to be registered for VAT in the UK. With these new measures, we may:
· direct a business to appoint a VAT representative in the UK
· require a business to provide a security to HMRC
· rule that an online marketplace provider and/or a UK VAT representative are jointly and severally liable, together with the business, for any UK VAT debts that become due.
Chinese Retailer are being offered hugely subsidised postal services known as “Terminal Dues” by the United Nation’s Universal Postal Union (UPU) allowing them to sell goods including postage from China to the UK for less than the stamp would cost a UK retailer to send the same item from the UK to the same customer.
United Nations UPU class China, the second biggest economy in the world, as a Category 3 Economy along side Gabon. This entitles Chinese online retailers huge international postal discounts. Packages can be sent to the UK for less than a penny. And it’s the UK mail service and the cost of our stamps that picks up the tab.
HMRC have just released a press statement “HMRC tackles online VAT fraud in time for Christmas. They have handed out 7,185 VAT numbers to Overseas Online retailers in the last year, that’s a tenfold increase in last year’s figures of 695 due to their crackdown of Online VAT Fraud.
However reading between the lines is seems to be desperate attempt by HMRC to get some positive PR and be seen doing something positive in tackling the online VAT fraud they have ignored for the past ten years. The press release simply proves Online VAT fraud is enormous with 7,185 previously unregistered overseas retailers deciding to register for VAT.
We tested the tool and there seems to be some flaws in it. It doesn’t work for NON EU companies (Chinese) with EU stock as it doesn’t ask where your business is located. It also says that you need to hit the VAT threshold before registering for VAT. There is no VAT threshold for NON EU companies. We find the tool completely confusing to use with a very badly designed results page. Hope KPMG are better accountants than web developers.
Perhaps they should think about renaming it from “VAT registration litmus test” to “VAT registration ambiguity test”!!
The government has just announced in the Autumn statement the Implementation of the Fulfilment House Due Diligence Scheme in 2018 to tackle VAT fraud by overseas businesses selling goods via online marketplaces.
Lets hope Amazon Fulfilment will be held liable of all VAT Fraud being committed from its warehouses. Amazon “Should have known or would have known!!!”
In addition to that the government have given Customs and excise officers new powers to inspect goods.
The Rt Hon David Gauke MP announced that online VAT fraud accounts for up to £1.5billion of the total VAT gap. However it’s costing a lot more than that; £1.5billion of evaded VAT equates to £7.5billion in lost sales revenue for UK companies.
These UK companies are the ones funding HMRC and paying the £2.4 million pension pot for the most useless ex CEO of HMRC ever; Lin Homer.
The missing £7,500,000,000 is ending up in Chinese bank accounts without any VAT being paid. It’s also completely disappearing from the UK economy with no benefit to anyone other than the VAT Evaders and Amazon & eBay shareholders who are profit from vat fraud.
Appointing VAT Representative for Overseas businesses
It’s good to see the government has finally acknowledged the scale of the VAT Fraud. In the governments Fulfilment House Due Diligence document David Gauke MP, Financial Secretary to the Treasury is quoted:
“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.”
However, looking through the proposed changes to the law we have some serious misgivings regarding some of the measures.
HMRC has shown a woeful lack of understanding of the scale and risk of VAT fraud now being committed by Chinese and Non EU NETPs on eBay and Amazon.
In July 2014 we handed our detailed report to HMRC VAT Fraud Team and Lin Homer, the CEO of HMRC. We were extremely disappointed to receive a standard letter from Lin Homer asking us to “report anyone we suspected of VAT fraud to the VAT Fraud Team.”
Her response indicated that not only had she completely missed the point of the report, which was to reported several hundred VAT evading sellers, but more importantly to highlight the scale of the problem which was being ignored and mushrooming out of control and was cost the UK £billions in lost revenue.
It is only recently that HMRC have started to take any action against the VAT evading sellers in our report.