UK tackles £1.5bn e-commerce VAT fraud

The UK’s Chancellor, George Osborne, announced today in his budget action on non-EU VAT fraudulent sellers on online marketplaces.

This will include:

1. The obligation of non-compliant non-EU sellers to appoint UK-based VAT representative and/or put bank guarantees in place.  The agents will be responsible for UK VAT registering the e-commerce sellers, and filing VAT returns and remittances.  This is based on strengthening existing legislation (VAT Act 1994, Section 48).
2. If no agent is appointed within 30 days of notification, then the UK may make the e-commerce platforms jointly and severally liable for any missing VAT.  This will require new legislation in the Finance Act 2016;
3. Fulfilment houses to apply a new due diligence regime to detect VAT fraud in this area on behalf of HMRC

It is believed that up to £1.5bn is being lost each year as largely China-based online sellers of goods to consumers have failed to UK VAT register, as required. This has resulted in heavy losses of VAT. It is also putting UK domestic sellers at a severe competitive disadvantage since they must charge 20% UK VAT.

The above measures are estimated to raise £875m over the next five years.

The UK is raising this problem with other EU member states and the OECD, with the aim for similar international action.