UK acts on foreign seller £2bn VAT fraud

The UK’s HMRC has gained new powers to counter foreign seller VAT fraud on online marketplaces - estimated to cost up to £2 billion per annum in lost revenues. The measures come into place following the royal assent of the UK Finance Act 2016 on 15 September.

Non-resident sellers holding goods in UK warehouses to sell to consumers are liable to register and charge UK VAT. However, it is believed that hundreds of foreign sellers, principally from China, are not correctly registered or charging UK VAT at 20%. Aside from failing to collect and remit the VAT due to HMRC, it has given the foreign vendors an unfair price advantage over domestic sellers.

HMRC now has the backing to screen for high-risk offshore sellers likely to be evading VAT in this way. Factors to identify these sellers include: failure to VAT register; not filling returns; or failing to remit the correct VAT. Such sellers may then be required to appoint a UK VAT representative to oversee their ongoing compliance. The representatives will become jointly and severally liable for any missing VAT.

HMRC may also order marketplaces to remove any sellers who fail to comply with the above steps. This includes issuing a liability notice to the marketplace. If the marketplace fails to remove the seller, they may also be held liable for the missing VAT.