General Business Forum Brought to you by Square

British businesses strangled by online VAT fraud

  1. VAT
    Francois Badenhorst

    Francois Badenhorst Business Editor, UKBF & AWEB Staff Member

    91 18
    2 |

    The Public Accounts Committee has attacked the “unfair and illegal” tax practices of overseas competitors using online trading platforms.

    Many sellers based outside the EU aren’t applying VAT to sales on goods sold through marketplaces like eBay and Amazon. This enables them to undercut by UK businesses by up to 20%. It’s a racket which HMRC estimates costs the public purse between £1 and £1.5bn and many consumers are unaware that it’s happening.

    It’s an estimate that the PAC has labelled as “out of date and flawed” since HMRC does not have estimates of the amounts lost before 2015–16. The estimate, the PAC report said, also doesn’t “account for the wider effects of online VAT fraud, such as distorting fair competition in the market and undermining perceptions of equity and fairness in the tax system”.

    The Committee says HMRC should, by March next year, produce an updated estimate of the scale and impact of the VAT fraud tax gap.

    Cat and mouse

    Meg Hillier MP, the chair of the PAC, chastised HMRC’s inertia in dealing with the issue as “dismal”. But also admitted the tax authority is playing a game of cat and mouse since the companies are based outside the UK. It’s for this reason that the PAC recommended “high profile enforcement action” to send a message.  

    “The common link is that physical goods are sold via online marketplaces, in many cases via warehouses or ‘fulfilment centres’ physically based in the UK. HMRC needs to be tougher on these marketplaces.”

    Hillier’s most stern criticism was reserved for the online marketplaces themselves however. “Online marketplaces tell us they are committed to removing 'bad actors' yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders.

    “They can and should do more to drive them out and we will expect online marketplaces to cooperate fully with HMRC in tackling non-compliance.” Amazon and eBay came in for particularly harsh censure from MPs.

    Closer cooperation

    Alongside the revised estimate for the VAT tax gap, the Committee said it wants HMRC and online marketplaces to reach a cooperation agreement by next March.

    "This should include a requirement for all online marketplaces to ensure that a valid VAT number is showing for any non-EU trader selling goods to customers in the UK, where those goods are already in the UK. In the absence of a legal requirement to do so we would expect online marketplaces to implement this measure voluntarily."

    HMRC, however, believes its new, enhanced powers—joint and several liability, the Fulfilment House Due Diligence Scheme and the split payments method of collecting VAT—will be sufficient to tackle the problem.

    For the PAC, these powers will not yield instant results, “and there is no guarantee that this will be enough”.

    The spectre of Brexit

    As with seemingly everything these days, the sudden urgency of the issue has everything to do with Brexit

    As, a campaign lobby dedicated to this issue, pointed out, once the UK exits the EU, “every country in the world, including the EU, will be able to distant sell into the UK with the customer paying the VAT & Duty”.

    The problem of VAT avoidance, according to VATfraud, could go nuclear post-Brexit. “The postman will become the VAT collector for every distant sold package sold into UK. Prices for all non UK sellers, with stock located outside the UK on will be displayed without VAT at 20% cheaper” and “all goods under £15 from non UK retailers will be sold VAT free and have a 20% price advantage”.

    This article was originally published on our sister site, AccountingWEB.

  2. Michael Loveridge

    Michael Loveridge UKBF Newcomer Free Member

    10 6
    I agree that this is a total scandal, and that HMRC are dragging their feet.

    However, we mustn't forget that these fraudsters are being aided and abetted by the credit card companies who provide them with credit facilities.

    I've been raising this issue on another forum in relation to counterfeit and pirated goods. Although it's illegal to import these into the EU, even if they are for private use, the credit card companies are allowing the counterfeiters to accept payment via their cards.

    The card companies therefore need to be brought to task, and to face heavy financial penalties for allowing criminals to use their facilities. Even if some of the fraudsters themselves may only be fairly small time much of the sale proceeds from counterfeit goods is being used to finance serious criminal activity, such as people trafficking and drug dealing.

    The fact that the credit card providers seem quite happy to do business with fraudsters makes a complete mockery of their pompous and self-righteous corporate responsibility policies and mission statements.
    Posted: Nov 1, 2017 By: Michael Loveridge Member since: Aug 2, 2013
  3. Eric Hawkins

    Eric Hawkins UKBF Newcomer Free Member

    1 1
    It is common practice by thousands of chinese companies to now promote there goods on Ali Express with always free delivery by China post that may take 20 days, after they take your money.
    One manufactures I legaly import multi function power banks via FEDEX, and pay the duty and VAT, are being offered by traders who who from the same manufacture and with a price i cant compete with becouse in there on line terms and conditions they state that the value of the item will show just $20.00 or less and listed as a gift, when the manufacture cost to me is $80.00 + delivery + UK duty and VAT
    Posted: Nov 1, 2017 By: Eric Hawkins Member since: Jul 26, 2017