How NETPs are committing VAT Fraud on eBay & Amazon

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:

  1. Not displaying a VAT number.
  2. Displaying a VAT number belonging to someone else and not in their name.
  3. Not displaying their full legal company name and displaying a made up company name
  4. Cloaking themselves as UK located sellers by using UK PO Box or virtual mail forwarding addresses instead of their real location to pass themselves off as UK traders.
  5. Using usernames such as “BestUKDeal” to make customers believe they are buying from a UK company.
  6. The more sophisticated sellers are setting up UK Ltd companies, but simply push all sales through their Chinese PayPal accounts without declaring any sales for their UK company.

Just by employing the points above, a NETPs and fake companies can cloak their real identity and location, making it almost impossible for anyone to identify them.

Business Seller Information on eBay

At the bottom of each listing on eBay.co.uk there is a box titled “Business seller information” where all the legal information should be listed.

How it should look:

This is Argos Outlet business seller information:

argos

Argos Outlet Business Information includes the trading address, phone number, email, company number, VAT number and “I provide invoices with VAT separately displayed”

This is what it should look like. One can clearly identify who the company is and all their relevant business details.

How it shouldn’t look:

This is a Chinese business seller information:

wedo

The full company name, company number and VAT number are not displayed. This seller is making sales in the region of £2.4 million a year from stock located in the UK. After purchasing a product from them, they couldn’t provide a VAT invoice because they said “they were not VAT registered”. (View case study)

From the information they have provided it is impossible to tell who the company is and if they are VAT registered.

eBay, Paypal and Money Laundering

Currently eBay business sellers are allowed to link their eBay business account with any Paypal account. The eBay and Paypal accounts don’t need to be associated with the same company, individual or country.

This allows NETPs and Fake UK companies to link their eBay Business seller account to a Chinese Paypal account. Money is simply paid into their Paypal account when a sale is made. This money disappears out of the UK economy and into Chinese bank accounts without a trace of VAT being recorded or declared.

This type of money movement to defraud the treasury is widely know as Money Laundering.

VAT Numbers

Some VAT evading sellers are using VAT numbers that are not registered to them. In one of our cases studies the same VAT numbers are being used by 4 different Chinese companies.

These VAT numbers are usually registered to UK individuals. The VAT numbers should be registered in the sellers business name with HMRC NETPs unit.

We have also found some sellers are registered for VAT but are not declaring their UK sales to HMRC.

Types of Business Sellers who Commit Fraud

There are several types of business sellers committing VAT fraud on eBay & Amazon:

Chinese Sellers

Chinese sellers have quickly realised that they can flood eBay UK with cheap Chinese goods, counterfeits, unbranded electronics and products that don’t meet EU safety standards.

Most of the Chinese sellers are located in Shenzhen which is the hot spot in China for electronic goods & accessory manufacturing. It is 30 minutes from Hong Kong Airport and DHL can deliver products from Shenzhen into UK warehouses within 2 to 3 days.

USA, Canada & Hong Kong Sellers

These sellers are targeting branded goods such as Camera, iPads & high value tech items. They are grey importing branded goods from USA, Canada & Hong Kong into the UK and not charging VAT to the consumer.

UK Individuals

UK individuals are mostly people using their home addresses on eBay and are working from home. They are able to undercut UK registered businesses because they have such low overheads and are not VAT registered, even when their sales are over the VAT threshold.  These sellers often buy counterfeit products from Alibaba and sell them at half the price they should retail.

How the fraud works

Chinese owned fulfilment companies in the UK provide specialist eBay & Amazon fulfilment services for Chinese & NON UK businesses.

Chinese sellers send their stock, already pre-packed and bar-coded, to fulfilment centres in China (mostly Shenzhen). The stock is then forwarded on in bulk to their UK fulfilment centres.

How Chinese sellers move their stock to the UK is unclear. Stock is arriving in the UK either as freight or as individually prepared packets. All indications are that by using the LVCR and Low Value Bulk Import procedures (LVBI), Chinese sellers are bringing in vast volumes of goods, many of which are being under declared. This enables them to avoid paying VAT. These LVCR imports appear to all intents and purposes to be items already sold to UK consumers by mail order that will be dispatched into the UK mail system when they arrive in the UK. In reality this stock has not been pre sold and is held as stock in the UK fulfilment centres, which only dispatches it when orders are placed via eBay and Amazon. Because they import the goods using LVCR most of the items come in VAT free as the declared value is under the £15 threshold. What is certain is the fact that the actual VAT status of the goods being sold is unclear.

We have evidence that sellers only declare 1% to 10% of the true value of high priced items, ensuring that LVCR is obtained. We also have evidence that HMRC are accepting bar codes on packets instead of an address. Packets should only be able to obtain LVCR if they are addressed to a customer in the UK.

The net effect of this behaviour is that goods arrive in the UK without paying VAT (or seriously under declared VAT) and are effectively supplied on demand to UK customers from a UK warehouse. This activity should be subject to VAT but no VAT is being charged because the sale is being declared as having been made by a supplier in China. This is blatant VAT fraud.
In addition to this fraud, the stock being sent to the fulfilment centres includes counterfeit products and products that do not meet EU and UK Safety Standards. We are already working with Trading Standard to help them identify locations of fulfilments centres.

The UK fulfilment centres involved in this trade also provide stock forwarding services to Amazon for the Chinese sellers with UK stock. This allows NON UK businesses to send their “non-existent” stock to Amazon to fulfil across Amazon’s European network of sites essentially VAT free.

The fulfilment centres have specialist software which connects to the seller’s eBay & Amazon accounts and processes the orders automatically.

We have tracked this behaviour because the activity can be traced back to the fulfilment centre by identifying the Printed Postage Impressions (PPI) license number that appears on the stamp. The Post Office provides each company with a unique PPI number, which is unique for each fulfilment. On request by the government the Royal Mail could also provide exact locations of pickup, numbers of items sent, business and bank details of all fulfilment centres.