Watchdog slams HMRC, Amazon over 'dismal' response to UK biz hurt by online VAT fraud

Estimate of full impact 'out of date and flawed' says committee

HMRC, Amazon and eBay have not done enough to crack down on overseas sellers evading VAT in the UK, a “dismal” failure that has hit British businesses hard, the House of Commons' Public Accounts Committee said today.

The select committee's report, Tackling online VAT fraud and error, warned that online sellers who do not charge VAT when using online marketplaces are undercutting prices offered by UK businesses by up to 20 per cent, “forcing many to lay off staff or even go out of business”.

HMRC estimates that UK taxpayers lost up to £1.5bn in 2015-16 from online VAT fraud. But the committee said the taxman’s estimate of the full impact of fraud is “out of date and flawed”.

Meg Hillier MP, chair of the PAC, said the response of HMRC and the marketplaces where fraudsters operate "has been dismal."

HMRC has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud

She said: “HMRC needs to be far tougher in protecting the interests of British businesses and taxpayers. As a priority it must inject more urgency into enforcement action. But it should also push the case for further new powers.

“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."

She told The Register, she would believe eBay and Amazon were serious about tackling this issue, when they voluntarily introduced a system of automatically deducting VAT on behalf of sellers.

"It should not be beyond the wit of businesses this size to do this."

In September 2016, HMRC introduced new legal powers to tackle online VAT fraud and error, including making online marketplaces potentially liable for non-payment of VAT.

But the committee said HMRC had been too cautious in using new powers, highlighting that the authority “has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud”.

All online marketplaces should force non-EU traders selling goods to customers in the UK to display a valid VAT number. ”In the absence of a legal requirement to do so we would expect online marketplaces to implement this measure voluntarily,” it said.

As The Register has previously reported, goods sold via online marketplaces are in many cases held in warehouse "fulfilment centres" physically based in the UK. However, HMRC does not know how many fulfilment houses there are in the UK, estimating the number to be somewhere between 500 and 3,000.

The report said a combination of HMRC's new powers, increased due diligence over fulfilment houses under a new scheme, and the split payments method of collecting VAT, where the online marketplaces would pay the VAT upfront, “will be sufficient to tackle the problem but these will not produce instant results and there is no guarantee that this will be enough”.

A spokesman from VAT Fraud, a campaign against non-UK sellers with stock in the UK committing VAT fraud, welcomed the findings.

He said: "HMRC have shown a complete dereliction of duty in tackling online vat fraud over the past 5 years. eBay and Amazon are equally culpable in fuelling this fire.

"HMRC has yet to make a single prosecution or seize any of the vat evaders stock from Amazon warehouses in the UK. Until this happens we will carry on campaigning."

An eBay spokesman said: "We want a fair marketplace for all our buyers and sellers. That’s why we have been working together with HMRC – and going above and beyond their requirements - to continue to ensure that our site is the best possible place to do business."

Amazon said: "We are reviewing the committee’s recommendations and support efforts to ensure businesses and individuals selling across all marketplaces are VAT compliant.

"We offer extensive information, training and tools to assist sellers in their VAT obligations, and we work closely with HMRC on this matter sharing all requested data on non EU sellers and promptly removing any seller they inform us is not VAT compliant." ®

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