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UK Parliament criticises slow progress on online VAT fraud

  • Jun 28, 2018 | Richard Asquith

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 new powers fail to dent £1.5billion VAT fraud

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

1. Marketplace Voluntary data sharing agreement

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.

2. Marketplace joint liability

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.

3. Fulfilment House Due Diligence Scheme

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.

Need help with your UK VAT compliance?

Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade. 

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.