UK election derails £1.5bn e-commerce VAT fraud measures

Last week’s announcement of a 8^th June general election caught the whole country by surprise, adding to the general Brexit-fuelled political and business insecurity.  This fallout from the announcment included the postponement of a range of e-commerce anti-VAT fraud measures, contained the 2017 Finance Bill, set to hit the e-commerce sector.

The news will be welcome by marketplaces and fulfilment houses as it threatened to load them with a heavy administrative burden; but will mean legitimate UK e-commerce businesses will continue to be undermined by foreign fraudsters.

Many of the changes now dropped from the Finance Bill were aimed at tackling the ballooning problem of VAT fraud by Chinese sellers on major market platforms such as Amazon and eBay.  This involves non-EU sellers importing and selling goods to UK consumers without properly registering and remitting UK VAT to HMRC.  The National Audit Office estimated this year that the government is losing up to £1.5billion VAT per annum as a result.  In addition to the lost tax revenues, such practices threaten to undermine VAT-compliant UK businesses with significantly lower sales prices.

In 2016, the UK introduced a sweeping range of new powers to curb this problem.  This included the powers to require non-EU online Sellers to appoint special fiscal representatives in the UK who would be responsible for proper recording and payment of UK VAT.  More controversially, HMRC was given the power to make the marketplaces directly liable for any non-compliant sellers’ missing VAT.

The results were initially impressive: the number of VAT registrations by Chinese Sellers rose from 695 in 2015 to 7,185 in 2016.

However, the fraud problem has persisted into 2017.  The European anti-fraud office, Olaf, issued a report earlier this year that stated the UK should potentially be charged with a bill of up to €2billion for its failure to properly control VAT registrations and customer fraud by Chinese Sellers on their importations into the EU, via the UK.

The draft proposed measures to tackle the fraud problem would have created an approved fulfilment house scheme.  This would oblige UK fulfilment houses to perform basic due diligence on their customers’ imports, including measures to identify VAT and customs fraud.

However, following the snap election news, these measures have had to be stripped out of the Finance Act to ensure its passage – including measures from the last budget - before the election. It is not clear when, and if, the measures will be introduced.

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