UK Parliament criticises slow progress on online VAT fraud

Parliament’s Public Accounts Committee (PAC) has today highlighted ongoing weaknesses in HMRC’s fight against online retailers failing to properly declare and pay up to £1.5billion in VAT on sales on major marketplaces. Many of the fraudulent e-retailers originate from China.

HMRC needs greater powers to break the stubborn levels of VAT fraud. They need the right to more easily seize the stocks of fraudulent e-retailers. Following the examples of many countries in South America with similar major VAT problems, the UK could require marketplaces to withhold the VAT element of payments to its online merchants. The marketplaces would then pay the VAT directly to HMRC – known as ‘split payments’.”

HMRC has been issued with a range of measures to help reduce online VAT fraud. These include:

A new voluntary marketplace agreement with marketplaces covering the exchange of online merchants’ trading activities. Since its May public launch, it has been signed-up to by Amazon, eBay, Etsy, ASOS and others. But many marketplaces are still missing.

In Chancellor Phillip Hammond’s Autumn Budget last year, he brought forward plans to make marketplaces directly liable for any unpaid VAT by merchants operating on their platforms. This came into effect on 15 March 2018. As a result, marketplaces must exclude any UK or non-UK merchants that cannot demonstrate they are properly UK VAT registered.

From 30 June 2018, all UK fulfilment houses providing imported goods storage for non-EU businesses will need to apply to join a new, HMRC-approved register.  The scheme was originally announced in the 2016 Budget. The scheme affects all UK-based businesses that fulfil orders of imported goods for third parties. Some rules may also apply to businesses that import goods or those that transport imported goods to and from fulfilment houses.

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