The Guardian has reported that:
Guardian investigations found many tax-evading sellers were trading without displaying VAT numbers on Amazon or eBay. Others were showing made up numbers, or numbers cloned, without authorisation, from unsuspecting legitimate businesses.
Several sellers purported to be operating through UK trading companies, but checks showed these firms had been dissolved, sometimes years earlier. None responded to questions about VAT.
HMRC estimates the explosion in VAT fraud on Britain's shopping websites willcost £1bn to £1.5bn in lost VAT revenues this year, with much of it going missing in the current festive period.
It added that this is despite new legislation enacted this year:
Under the new rules, HMRC now has the power to issue Amazon and eBay with warning notices about suspected VAT fraudsters using their sites. If they then fail to take action, Amazon and eBay can be held liable for any VAT that later goes missing.
In reality, however, these changes have had little impact and VAT evasion remains widespread.
The reason for the failure is obvious: the onus is not on Amazon and eBay to spot errors but on HMRC to tell those on-line platforms that errors have been identified by our tax authority, which is absurd and also seems contrary to EU law as expressed in the Kittel principle.
So, as the Guardian also reports:
Guardian investigations found Amazon even offering extensive support services at its British warehouses to overseas sellers that were doing little to mask their VAT evasion.
As well as advertising these sellers' goods on Amazon.co.uk, it holds items in Amazon UK warehouses, arranges delivery to addresses across Britain, and deals with complaints and returned goods.
Amazon warehouse staff even offer gift-wrapping services on behalf of the fraudster sellers.
There is no suggestion Amazon or eBay knowingly facilitate specific fraudulent VAT-free sales, but the two US groups are nevertheless well aware that evasion in online shopping is a major problem.
So, whilst I agree that Amazon and eBay might have done nothing wrong that is only because the UK's new law supposedly intended to tackle this issue and passed this year does not put them on the hook for this crime which can only take place because of the facilities that they provide. If the law was changed so that anyone trading on Amazon and eBay and similar platforms has to:
a) Prove their identity, place of trade and tax residence and publish that data on the web site;
b) Prove their VAT status and publish their VAT number prominently on the site;
c) Withhold VAT payments due to third party vendors located outside the UK shipping from warehouses in this country, which may be those managed by the platforms themselves;
then the risk of this fraud would be massively reduced.
So why won't the government do that? Whose side are they on?
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They’re on the side of big business. They’re quite happy to bully people in Jersey and Guernsey, but they won’t stand up to multinationals.
this seller Wi-Shop reported to amazon and hmrc for non vat compliance but they still trade months later , by the feedback amounts they have probably doing 150k turnover a month , I did a test purchase said they didn’t have a vat number but would knock off money
Was this covered in the autumn statement?
4.3 Implementation of the Fulfilment House Due Diligence Scheme
As announced at Budget 2016 and following a consultation on the scope and design of the scheme, the government will legislate in Finance Bill 2017 to introduce a new Fulfilment House Due Diligence Scheme in 2018. This will ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.
6. Avoidance and evasion
6.2 A penalty for participating in VAT fraud
As announced at Budget 2016 and following consultation, the government will legislate in Finance Bill 2017 to introduce a new and more effective penalty for participating in VAT fraud. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The penalty will improve the application of penalties to those facilitating orchestrated VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud. This will be implemented following Royal Assent of the Finance Bill 2017.
6.3 Power to examine and take account of goods at any place
The government will introduce legislation in Finance Bill 2017 to extend the current customs and excise powers of inspection. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from Royal Assent of the Finance Bill 2017.
Let’s wait and see…..
A couple of observations:
1. Maybe its time that all businesses were required to register with HMRC for VAT purposes, and if their turnover is targeted to be lower than the present registration theshold, they could apply for a non-return basis. In this way traders would have to opt-out of the obligation to submit a return rather than opt-in. They would still have a VAT number that could be used as verification data by Amazon who could use a portal on the GOV.UK site to authenticate registration applications made by traders to sell on their website.
2. Making Tax Digital is due to enfold VAT from April 2019. Should marketplace sites like Amazon etc be required to push sales data for traders to HMRC, much as banks push interest data to personal tax accounts? If they did, HMRC could constantly compare returned sales with disclosed sales and use the information to target mis-matches.
Bith interesting ideas
I like the second more than the first
There is a worry here IMO on the use and misuse of data collected by Government.
See https://haveibeenpwned.com/ for details of breaches.
GDPR should reduce this by the fines system changing behaviours – http://betanews.com/2016/10/18/gdpr-fines-uk/ when implemented
But its impossible that fines act as a deterrrent for Governments, any fine would just be a book entry!
I am all for robust measures to protect a tax and revenue place, but the requirement to send my ebay transactions to the Government seems a step too far.
Sorry – but in practice this power exists for banks
And credit cards in some cases
So ebay is just another reasonable step
Great article Richard. Having been working the government & HMRC trying to sort this issue out it seem that the government wants to sort out the problem. I’ve introduced new policies and proposed policies.
However it’s HMRC’s responsibility to implement these new policies, take action against the sellers and report back to the government. In our view HMRC have shown complete incompetence in tackling the fraud ever since the issue was first raised with the government.
We really can’t understand why they failing to stop the fraud. We have reported 1000’s of sellers to HMRC and most are still trading. HMRC are now issuing VAT numbers to sellers that have been VAT evading for many years. These aren’t small time seller’s: some are making sales in the region of £1million per month who have openly admitted they where not VAT registered.
This is a very crude and easy to spot fraud. HMRC has some serious questions to answer
Agreed
And you are doing great work in pointing this out
Why not just reduce the VAT registration threshold to zero, so that all companies pay VAT, all the time? Obviously this would mean a lot of small companies going bust, but that’s clearly a price worth paying.
We do not want to impose that burden on millions of small business for tiny revenues
That burden is on its way…MTD