The FT has reported that:
UK tax officials are set to strike an agreement with online marketplaces including Amazon and eBay that will give HM Revenue & Customs access to their data to combat value added tax evasion by overseas online retailers.
As part of the agreement, which will be announced this month, online platforms will be required to provide merchants data to the tax authorities so HMRC can spot trends in fraud. The platforms will also commit to do more to educate sellers on their VAT responsibilities and take action to block vendors engaging in persistent tax evasion.
The tax authorities will invite online marketplaces to sign the new agreements and will publish a list of the marketplaces that conform to their conditions. Amazon and eBay confirmed they would sign an agreement with HMRC.
The fraud that is being tackled here is thought to amount to well over £1 billion a year. And HMRC are still doing 'pretty pleases' to Amazon and eBay as if they were complete third parties in this fraud, the existence of which is now proven beyond doubt and which could not happen without the existence of such platforms.
There is a solution to this whole issue. It is to make Amazon and eBay liable for collecting VAT on all sales through their platform unless the retailer using their services can prove they are not liable to be registered for VAT purposes. I know this may penalise some smaller retailers with an extra admin burden. And it will mean that Amazon and eBay would have to ensure that non-VAT chargeable sales such as books could be kept out of charge. But given the tax losses that are happening I think the costs this would impose would be fair and would justify a small price increase to cover admin, if necessary. Such an arrangement would also create a level playing field for small businesses against tax cheats - which would more than outweigh the cost burden on them. But instead it's still the case that the platforms are running rings around our tax authority.
When will they learn?
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Amazon are STILL receiving stock from Chinese sellers with NO VAT number. I reported this seller yesterday:
https://www.amazon.co.uk/iZoeL-Scraper-Shavers-Stainless-Scrubber/dp/B06XXWSDY3/ref=sr_1_6_a_it?ie=UTF8&qid=1523020500&sr=8-6&keywords=callus+remover
Detailed Seller Information
Business Name:Guangzhoujuqilumaoyiyouxiangongsi
Trade Register Number:91440101MA59PJFP23
Business Address:
Zhongyijie9hao215fangzibianC1
Baiyunqujichanglu
Guangzhou
Guangdong
510000
CN
Note of the first link Amazon say this will be in stock on April 12. Thats because it takes about 5 working days to receive the stock fully. Why are they allowed to do this 3 weeks after Royal Assent? I thought the law was if they ‘knew or should have known’ someone should be VAT registered and they did nothing then they are jointly liable. This is a massive red flag.
Making the marketplaces liable sounds nice and simple for cross-border VAT fraud.
But how would marketplaces calculate the VAT correctly? The cross-border place is supply rules in UK and EU to do this requires a lot of information – price, cost, commodity code, country of departure and arrival, B2C or B2B, registration and threshold status of the Seller…and much more.
The marketplaces do not have all of this data. Often almost none of it. So would often get it wrong by under or over calculating VAT. That would create chaos for Tax authorities, customers, Sellers and marketplaces.
So, unfortunately not the right answer for this problem.
Simple
Make Amazon and eBay the seller. The public think they are.
Next problem?
Interesting.
Since, in many cases, marketplaces do not own, control or fulfil the goods, how would that work without bringing the system to a halt for lack information to do the VAT calc?
Would you want the marketplaces to know the cost prices and sources of the Sellers’ goods (which they would need for VAT cals, Intrastat, ECL’s declarations etc)? I suspect most Sellers would not be prepared to give up this market-sensitive information.
Which country would get the tax on the cross-border trades where most of the fraud occurs? UK, EU other? There is no clearing house to fairly judge this and that the tax authorities would trust each other with. There are some EU-level proposals, but plenty of member states are sounding sceptical.
Many small, start-up marketplaces could not begin to cope with the above from an IT/ERP point of view. That would lock-up the market for the big platforms who could. Would this be desirable?
There are many further, similar reasons why making the marketplaces the owner, or manage split payments. I wish I knew a way around them too!
Hang on: the rules would be disclose or you can’t trade. Let’s not be silly here. Rules define markets.
And the cost price? Let’s again get real: sale price less the margin.
“Make Amazon and eBay the seller. The public think they are.”
So the relationship would be like a High Street retailer or a corner shop ?
That’ll never catch on. That would be like a level playing field.
Never mind the FT reporting it, you can see the full correspondence between Jon Thompson (CEO, HMRC) and Meg Hillier (Chair, PAC)
https://www.parliament.uk/documents/commons-committees/public-accounts/Correspondence/2017-19/HMRC-Tackling-online-VAT-fraud-error-270318.pdf
The area needing most attention is Fulfilment Houses. HMRC hasn’t yet got to grips with that link in the chain. If it can (and it really could quite easily), this would be close to being wrapped up.
Precisely
” the Government introduced
legislation in Autumn Statement 2017. ”
Extract from the “https://www.parliament.uk/documents/commons-committees/public-accounts/Correspondence/2017-19/HMRC-Tackling-online-VAT-fraud-error-270318.pdf
My understanding is that there was no ‘Autumn Statement’ in 2017. There was a ‘Budget. I would have thought HMRC would be expected to know that. In the next para they refer to the Budget of 2016.
Seems a bit sloppy to me.
and more….
“The entire VAT gap is
£12.4bn for 2016-176, and the high estimates produced by some commentators
would lead us to conclude that online sales fraud makes up more than half of the
VAT tax gap. Given that in 2016 only 15% of retail spending was online, this is not
realistic. ”
Unless of course the £12.4 bn estimate is not ‘realistic’. Perhaps extrapolating the other way should ring some alarm bells. (?) Might at least merit some investigation.
Also to date HMRC have seized no goods. How naive? Did they think the VAT evaders would just recall the stock back to their own country.
When the German Tax authorities closed 100 of the biggest VAT evading accounts just before NYE their tax law stipulates they must seize all vat evaded stock
“HMRC will publish this agreement in April 2018 and invite online marketplaces to
become signatories to it. ”
“Invite” ?
Fierce aren’t they. ? 🙂
“c. Paying Tax. The taxes businesses pay fund public services such as the NHS
and schools. ”
Hmmm….(?) Is that a reassuring statement coming from HMRC ?
I think we’re all agreed that there is a lot of fraud, and HMRC is under resourced to tackle it. But HMRC is unlikely to get a sudden, massive boost in staff or IT investment in the current climate and with Brexit approaching. So we must find some workable, low-cost solutions on cross-border fraud that can be rolled out quickly.
Instead, why not make require the credit card companies to make a VAT withholding charge on online purchases?
VAT payers could then deduct any withheld VAT (reported to them by the credit card co’s) from their VAT returns’ final liability each quarter. It would be (relatively) simple to reconcile to the actual correct VAT calculation they do anyway. The credit card companies have (most) of the info to determine the location of the customer to get the right VAT rate and know which country is owed the VAT.
This ‘split payment’ of VAT would demolish most foreign sellers’ VAT fraud overnight. [Import VAT and customs fraud is another matter]
It may require a change in the EU payments directive. But that is easier than pushing a reform of the very complex EU vat rules to make marketplaces liable.
And, this route is already working: several South American countries, which have a colossal VAT fraud issue, have been using it for years.
Credit card VAT ‘split payments’ isn’t perfect — looping off 20% UK VAT isn’t always right e.g. reduced rate goods and B2B. But:
– it produces better results than making marketplaces liable;
– would stop most foreign VAT fraud overnight
– wouldn’t divert resources (needed in other public services) to HMRC;
– it’s probably the quickest remedy
– and is already proven in other countries. And, could be done relatively quickly.
Are you assuming we are all submitting VAT returns?
HMRC now have 171 full time staff working on this and 2100 investigations. They have made 21,000 overseas sellers VAT registered.
They are now grasping how BIG this fraud is. How it also destroys many thousands of UK SME’s and is also putting negative pressure on the High Street (Maplins, Toys R Us, Mothercare next maybe?).
It’s not just the estimates £1.5b lost VAT revenue but the knock on effects and the loss of Corp Tax, NI etc not realised by UK companies. My VAT returns have dropped by £70kPA as I cannot compete with the VAT evaders. In 2013 my Amazon/eBay business was turning over £1.8m then when this struck in 2015 it dropped to below £0.5m overnight. I have managed to keep my business afloat ‘just’ for 3 years but has caused undue stress, health issues and family issues. I have nearly lost my house several times over the last 3 years.
I can see this finally coming to an end game ‘if’ HMRC understand this is low hanging fruit. It’s much easier to find than checking if Bob the Builder or Stavros the Chip Shop Owner are fiddling their returns. Also if the overseas sellers ‘mainly Chinese’ who are evading VAT it’s a good PR coup for them.
Why they didn’t act in 2015 when it was alerted to them is beyond me. Maybe they are just inept.
“And, this route is already working: several South American countries, which have a colossal VAT fraud issue, have been using it for years.”
I don’t want to sound picky, but….that doesn’t sound like much of a recommendation you the way it’s phrased.
Morning :-).
No I am not assuming we are all submitting VAT returns. The cross-border VAT fraud issue identified HMRC (and the above posts) relates to foreign sellers.
I am assuming that if a foreign seller is selling online (on their own website or marketplace) goods subject to VA to UK consumers (or other EU consumers for that matter), then they would need to register and file VAT returns. They do not benefit from the VAT registration threshold, for example, which is only available to resident sellers.
The credit card split payment option would also by-pass the low-value consignment stock relief non-registration abuse. This is another scenario where the foreign seller would try ‘cheat’ the system by not being VAT registered.
Hope this answers your question, but let me know if I misunderstood you.
OK
Thanks for the clarification
Richard Asquith says:
Re collecting VAT through card transactions online. Your suggestion sounds (deceptively?) simple.
Would/do the Card companies have the information required to operate the VAT withholding function? Would they need paying to act on behalf of HMRC in this manner and how resistant would they be to picking up the extra work I wonder.
Is Brexit going to have implications for this process ? Assuming anybody influential agrees it is actually practicable and a good idea. It would be rather perverse if having extricated ourselves from the EU we then have to sell them the idea in order for it to have enough clout to be adopted.
Andy
I remain unconvinced Richard Asquith has a viable solution
I think I have
Simply make Amazon and eBay the retailer
They buy from the vendor at price net of VAT less their commission. It really is not hard
Richard
“Simply make Amazon and eBay the retailer”
Makes sense to me.
The concept isn’t really difficult to grasp is it?
I was /am curious to know how far (the other) Richard has thought through his suggestion and whether it might have any legs.
You write a lot about how tax is used solely to curb inflation. As far as I can tell, inflation is very low in the UK and needs to be increased so why do we need to get more tax from Amazon?
So that the retailers that they compete with who pay their taxes might pay less
Graeme says:
“You write a lot about how tax is used solely to curb inflation. …”
Wrong actually. You weren’t trying to score a point there surely, Graeme ? You wouldn’t stoop so low I’m sure.
Just the other day Richard reprised his theory that there are six reasons to tax. Containing inflation is important (essential in fact to counter hysterical warnings of hyperinflation which threatens to engulf us at any moment apparently). I think perhaps you weren’t paying attention.
He wasn’t paying attention
He was just point scoring without purpose
“He was just point scoring without purpose”
“A miss. A palpable miss” As the Bard might have framed it.
I have heard that tax inspectors are being diverted on to minimum wage audits as the fines are bigger and the fines don’t go automatically to the treasury.
Anth says:
“I have heard that tax inspectors are being diverted on to minimum wage audits as the fines are bigger and the fines don’t go automatically to the treasury.”
I wish that sounded like an unfounded urban myth.
A tax inspector who just left HMRC told me!
Richard, it would be nice if sometimes you could think about the practical consequences of your proposals. This one, for example, would require the VAT Directive to be amended, ie unanimity. Not at all easy and on past performance would take several years. The UK can’t go it alone and still remain part of the EU VAT area (which I recall you, entirely sensibly, support).
I have been told for many years that if only I was more practical I would achieve more
That way we would not have had country-by-country reporting
And tax justice would not have delivered automatic information exchange
And more besides
My whole role is to think outside the box
Boxes can be rebuilt
But you can’t just ignore practical considerations, Richard. If there are two ways to achieve an objective, and one requires political unanimity and years of process, and the other doesn’t, isn’t the second preferable?
How about both?
But also remember what GBS said (and the language is a century old, so I have updated it):
‘The reasonable person adapts to the world; the unreasonable one persists in trying to adapt the world to their point of view. Therefore all progress depends on the unreasonable person.’
I am happy to be unreasonable
That would be more persuasive if you’d been more successful, Richard. FATCA/CRS and BEPS have made the running, and they had little nothing to do with you. CBCR is a sideshow, with no reason to think it will change anything.
You have the gift of being skilled with the media, and you could turn it into policy influence – but you don’t.
Funny how you have appeared here under two different names today….
Trolling is so unattractive
Morning All
Just catching-up on the comments above about the two proposal on cross-border VAT fraud:
1. making marketplaces responsible for VAT reporting; versus
2. the credit card option.
Marketplaces: The marketplaces don’t have enough info to do the cross-border VAT calc. The Sellers would have to provide the marketplaces with lots of extra data under this proposal. If you read many of the Seller chat room discussions, they don’t want to do that because it obliges them to reveal to the marketplaces their margins/cost prices and where they sourced the goods. Remember – some marketplaces already sell on their own behalf so are in competition with the Sellers. So this proposal would risk pushing thousands of small Sellers off their vital marketplace channel = loss of livelihoods and less choice for consumers. The latter could mean higher prices – do who would want that?
Credit card company split payments: this already works in Brazil and other countries around the world with bigger VAT fraud problems than the UK. Italy has had major success with such split payments in its B2G VAT fraud battle.
So the difference is marketplace liability looks like undermining the choice of consumers and livelihoods of Sellers. But credit card split payments avoids this, and is already proven to work.
Hope this helps.
The EU has found no advantage to the credit card option https://ec.europa.eu/taxation_customs/sites/taxation/files/split_payment_report2017_en.pdf
It is favouring marketplace option https://www.vatlive.com/vat-news/germany-marketplaces-liable-for-missing-vat/
I stick by my opinion
Collusion isn’t naivete, ask Vodafone.