Non-EU Overseas Online Retailers who hold stock in the UK are totally out of reach from prosecution by HMRC under the current laws. They 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.
HMRC has issued over 43,500 VAT numbers to Non-EU Overseas Online Retailers (mostly since 2014).
HMRC estimate Online VAT Fraud is £1.5 billion a year, 60% of which is by Non-EU Overseas Online Retailers.
HMRC has only collected £150 million in VAT from Non-EU Overseas Online Retailers; about £37 million per year.
£37 million represents 3.89% of what should be collected.
This equates to a total of 96.11% or £865 million that is still going uncollected.
The system clearing isn’t working. It is completely and utterly broken.
The UK must follow in the steps of France & Italy who require Non-EU companies to appoint a Fiscal Representative and Bank Guarantee.
Make all Non-EU Overseas Online Retailers appoint a Fiscal Representative and Bank Guarantee
Make all UK Registered Companies owned by Non-EU Residents appoint a Fiscal Representative and Bank Guarantee
At present Online Marketplaces such as eBay, only checks an Overseas Sellers VAT number is valid and matches the business name. eBay doesn’t check if the seller is the actual legal owner of the VAT number & business name.
Overseas Business Sellers to use and share company names & VAT numbers that do not belong to them.
Overseas Business Sellers to pretend to be UK sellers and use made up company names & address without having their business details verified at all. The seller also doesn’t have to provide a VAT number.
UK Business Sellers can also provide made up company names & addresses. This sort of seller usually sells counterfeit and dangerous goods.
Company names and VAT numbers can be changed daily by a seller on eBay.
Amazon fully verifies a seller business details under the EU Anti Money laundering legislation because Amazon handles all payments.
However eBay does not have to adhere to EU Anti Money laundering legislation because they don’t handle payments; PayPal does.
Joe Billante, eBay Vice President, told the Public Accounts Committee on 13th of September 2017 that sellers can’t operate multiple accounts if they are selling the same products in same categories and that eBay have internal systems in place to ensure compliance.
Joe Billante statement to the Public Accounts Committee:
“It may look like they have 20 accounts because they put certain categories of certain goods into different accounts.”
“If the same seller wants to operate five accounts because it operates in five different categories, we are able to see that information internally as the seller signs up. We are able to link that together in our systems.”
eBay states it’s against eBay policy to operate duplicate accounts and listings: “Not allowed; Duplicate listings policy; Selling identical item listed separately by Multiple accounts belonging to same seller”
eBay Takes No Action against Duplicate Accounts & Listings
eBay does allow sellers to operate multiply duplicate accounts with duplicate product listed in each account. eBay takes no action against these “Bad Actors”, even when it is reported to them. This means “Bad Actors” can dominate eBay & Google Shopping search results with lots of listings of the same product, pushing out the compliant sellers who only list one product. This is putting compliant sellers who play by eBay’s rule book out of business.
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.
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.
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.
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.
From 1 December 2012, all Non-established taxable persons (NETPs) (HMRC VATREG37000), supplying goods located in the UK are required to register for UK VAT when they make their first supply of goods or services here, regardless of the value. There is no VAT threshold (HMRC VATREG37050)
NETPs know eBay and Amazon do not enforce EU Distance seller regulations and will not take any action against them if they break Distance Selling Regulations or commit VAT Fraud, even when it is reported.
NETPs also realise that HMRC has so far taken no action against them. This has opened the floodgates for NETPs to commit VAT Fraud.
Because eBay and Amazon do not enforce EU distance seller regulations, there are several techniques NETPs and fake companies are using to trade illegally without charging VAT:
From 1 December 2012, all Non-established taxable persons (NETPs), supplying goods located in the UK are required to register for UK VAT when they make their first supply of goods or services here, regardless of the value. There is no VAT threshold.