Invasion of the NETPs

The official term for businesses from outside the UK, who are warehousing and dispatching goods from the UK to customers in the UK is Non-established taxable persons (NETPs).

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.

Importance of eBay & Amazon in the UK

eBay.co.uk has more than 19million monthly users, and has traded £65billion worth of goods since its launch in 1999. It has created more than 2,000 UK millionaire business sellers. Argos, Superdrug, Tesco, Dabs, Littlewood’s, Schuh, Finlux, PC World and Homebase are a few of the large business sellers on eBay.co.uk. In 2010 there were over 190,000 UK SME’s achieving sales of £446m on eBay.co.uk.

Third-party sales represent 29% of all sales on Amazon. Amazon is growing at around 50% year on year.

eBay & Amazon are now the chosen method for SME’s to trade online due to the low start-up costs and the small amount of investment in technology or marketing required.

eBay and Amazon are no longer small market places where individuals sell unwanted items. They have now become essential parts of all businesses trading online – Argo’s Outlet Store on eBay currently makes sales of over £3.5 million per month.

At a time when the UK economy relies so heavily on consumerism, the fact that Chinese companies have been given a platform on which they can sell their UK based stock directly to UK customers, without charging VAT is having a serious impact on the British retail industry. It is losing the exchequer billions of pounds a year, and it is putting UK retailers out of business.

Are eBay and Amazon Failing UK SME Businesses?

eBay and Amazon do not ensure all business sellers abide by UK VAT laws and EU distance selling regulations. They do not verify business seller account information, including company name, trading address, company status and VAT number.

This has opened the floodgates for Chinese NETPS and non-EU companies to set up business seller accounts, masking their true identities with fake company names, UK PO Box addresses, and not providing VAT information. In some cases they are declaring that VAT is not charged on their listings. It is almost impossible to know who is operating the business seller account, where it is from and if it is a legitimate business.

eBay and Amazon put the onus on the sellers to provide valid business information. eBay and Amazon refuse to recognise that it is their responsibility to enforce, monitor or prevent this fraud from taking place and fail to take any action against illegal sellers that are reported to them. This self-regulation is clearly not working.

It is very evident that UK VAT and EU distance selling regulation need to be enforced by law on eBay and Amazon. By removing illegal business sellers, legitimate UK VAT registered retailers will be able to compete fairly on a level playing field and the money generated will remain in the UK economy.

Fulfilment Centres & NETPs

VAT evading NETPs and fake sellers are using UK based fulfilment centres, including Amazon, to warehouse and dispatch orders for them.

In our investigations we identified that most of the fulfilment centres used by Chinese NETPs are Chinese owned companies specialising in providing fulfilment services for Chinese based eBay & Amazon sellers.

These fulfilment centres provide a complete turnkey solution for NETPs. They will collect their products in China, ship them to the UK and fulfil their eBay and Amazon orders.

Fulfilment centres are complicit in this VAT Fraud.

The UK – a target for VAT Fraud

eBay.co.uk and Amazon.co.uk have become the target for NETPs VAT fraud because English is the second language for most NETPs,  making it very easy for a NETPs Seller to operate from the UK and provide customer support. We have noticed there is very little NETPs VAT fraud in non-English speaking countries such as Germany.
As for eBay Germany, the top sellers are all German companies – there is very little Chinese competition. Also the German sellers are able to sell like-for-like products at realistic prices because they don’t have aggressive Chinese sellers undercutting them with VAT free products.

Death of the UK Retail Industry

Over the past few years there has been a noticeable change in how Chinese products end up in the shopping baskets of UK consumers. Until not long ago Chinese manufactures would sell their products to a UK wholesaler or distributor, who would in turn sell it to a retailer, who would then sell it to the customer. However, in the past few years this retail model has changed, with the introduction of wholesale websites such as www.alibaba.com. Chinese manufactures and UK retailers have now been given a platform to deal directly with each other, cutting out the UK wholesaler. The UK wholesale industry has suffered as a result.

Currently, there is an even more worrying change in the market place. Chinese manufactures are now cutting out the UK retailer entirely and are selling directly to UK consumers, using platforms such as eBay and Amazon. These Chinese manufactures are taking advantage of the slack laws and regulations which make it very simple for them to start trading their stock from the UK direct to UK customers. The Chinese are now taking all the profit and sales from the UK retail industry and depositing it straight back into China.

UK Wholesale and Retail businesses are being pushed to the brink of bankruptcy because they can no longer compete with the new generation of Chinese companies selling direct to the UK consumer.

This also bring into question the safety standards of the goods they are selling and whether they meet EU and UK safety standards.