HM Revenue & Customs (HMRC) has estimated that the UK lost £1 billion to £1.5 billion from 2015 to 2016 due to online tax fraud.
A report from the Public Accounts Committee (PAC) published this morning warned that online retailers who are not fully tax compliant are undercutting UK business by up to 20 percent; this is resulting in staff layoffs and the closure of businesses.
MP Meg Hillier Chair of the PAC commented in the report that: “Online VAT fraud is hugely damaging yet, as online sales continue to grow, the response of HMRC and the marketplaces where fraudsters operate has been dismal.”
The HMRC has new extended powers to hold online retailers and platforms to account for tax fraud and unpaid VAT of businesses that are operating in online marketplaces.
If the HMRC believes an overseas retailer is committing tax fraud it can hold their stock in a UK fulfillment house in order to bring about compliance with the law.
However, the report found that it: “Has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud”
Online marketplaces are now responsible for ensuring that all VAT numbers displayed in association with companies are valid and compliant.
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Witnesses Evidence
Professor of Tax Law at the University of Leeds Rita De La Feria gave evidence to the committee and stated: “It is very difficult to measure fraud; that is the first point. If we knew exactly where it was, we would go after it.”
“I think there are two transactions at stake, from a legal perspective. There is a transaction between the seller and the customer, and there is another, separate transaction whereby the platforms supply intermediary services,” she noted.
“That is valid not only for Amazon and eBay, but for Uber or Google. I think there is a separate supply that should be subject to VAT. This is not an issue of fraud; it is an issue of interpreting what is the scope of the tax.”
“They are supplying a value added to the production chain, and that value added should be recognised for VAT purposes,” she commented to PAC.
Amazon
Steve Dishman VP for taxes in Europe for Amazon also gave evidence to the committee commenting that: “One of the difficulties that we face…is understanding that even if a company is VAT-registered, when it comes ultimately to paying over the VAT and then paying it over to HMRC, the only people who know for sure whether that happens typically, and whether the company is putting it on their VAT return, are HMRC.”
Of the 46,000 non-EU sellers on Amazon UK ,Dishman stated that “approximately half use Fulfilment by Amazon, so they have their stock in our warehouses.”
“In terms of VAT registration numbers, our policy until the last six or nine months has not been actively to collect those VAT numbers, as the VAT number itself does not guarantee in any way that a company is compliant. If the company wants to be fraudulent it would not ultimately pay the VAT.”
PAC Chair Meg Hillier stated that: “Online marketplaces tell us they are committed to removing ‘bad actors’ yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders.”
