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.
2016 Budget Annoucement
We are pleased to see HMRC are now taking steps to combat online VAT fraud. However the net effect of this proposed legislation is that it is an amnesty for VAT fraud that amounts to a tax exemption for those on-line market places who have been able to profit from the fraud.
This is hardly a self policing system that is required. Instead the policing responsibility lies with HMRC, who have already demonstrated a complete inability to police the £1-1.5 billion fraud in the first place. It will be interesting to see if they have the resources and time to police online marketplaces for VAT Fraud.
HMRC are the only people who can investigate, prosecute and recover undeclared VAT liabilities.
HMRC are failing to use readily available technology that can help identify VAT fraud on eBay and Amazon.
Trading Standards has highlighted the scale of the VAT fraud on eBay and Amazon to HMRC numerous times over the past 5 years; however HMRC have chosen to ignore all warnings.
The Data-gathering Powers (Relevant Data) (Amendment) Regulations 2013
Under The Data-gathering Powers (Relevant Data) (Amendment) Regulations 2013 HMRC have the powers to request sales data from Amazon, eBay & Paypal in order to identify businesses who do not declare their full sales.
It seems that HMRC have been focused on UK businesses and have so far taken no action against the NETPS who are committing colossal amounts of VAT fraud.
HRMC should use these powers to identity NETPs who are evading VAT.
In HMRC’s own words:
“This measure will significantly improve HMRC’s data-gathering to support more effective risk assessment of businesses and to create a fairer, more level playing field” – HMRC – data-gathering_from_merchant_acquirers.pdf
HMRC Risk Assessment of Online VAT Fraud
In 2006 the National Audit Office published a report VAT on eCommerce that backed HM Revenue and Customs’ assessment that the overall risk to VAT revenue from on-line shopping, or e-commerce, was currently low.
“I find it encouraging that HM Revenue and Customs is well positioned to manage the current risks to VAT from electronic commerce. With internet sales set to mushroom in the next few years, the Department faces a challenge to ensure it stays ahead of the game. Some businesses are inventive at side-stepping VAT, and the Department must be equally innovative in guaranteeing the Exchequer gets the revenue it is due – Sir John Bourn, head of the NAO – 26 May 2006.”
It details that 774 eCommerce VAT fraud investigations were carried out between April 2002 & November 2005. 72 of those cases required the seller to be VAT registered and involved £106,000 in undeclared VAT liability with £647,000 in predicted future revenue.
However 9 years later, eCommerce is completely different to what it was in 2006.
The 500 eBay sellers reported on this website alone have predicted future VAT revenue of £200,000,000. That is 309 time more than the £647,000 detected in the cases investigated by the HMRC VAT Fraud team in 2005.