MPs have warned Amazon and eBay that their platforms may not be doing enough to prevent many sellers from not charging VAT on their sales, thereby potentially contributing to £1.5bn lost tax revenue for the government.
The VAT loophole was highlighted in a recent report by MPs in the Public Accounts Committee.
What’s Been Happening?
If items are dispatched from UK soil, sellers have to charge VAT at 20%. Amazon and eBay, however, are believed to be keeping some of their stock in UK warehouses in order to provide next day delivery. Some of this stock is likely to be from overseas sellers, and it is believed, therefore, that goods from foreign sellers have been shipped to customers from UK warehouses without VAT being charged. This has enabled some foreign sellers to undercut genuine UK suppliers, and has meant a loss of potential revenue for the Treasury.
Working With HMRC
MPs have criticised an apparent lack of action to date by the big online selling platforms to address the issue, and some critics have also pointed to the fact that Amazon and eBay may actually be profiting from the fraudulent activity of sellers on their platforms by charging sellers a commission.
Amazon and eBay have told the commission that they are working with HMRC to resolve the situation, and that they are engaged in removing those offending sellers from their platforms.
It is not just eBay and Amazon who have come in for criticism by MPs over this matter. MPs have also criticised HMRC for being over-cautious in pursuing what are regarded by many as being VAT fraudsters.
According to the MPs’ report, HMRC could help to stop VAT fraudsters by setting up an agreement with online marketplaces by March next year, and by acting with more urgency in making use of its existing powers.
HMRC has answered critics by pointing out that it had introduced new rules last year specifically to deal with the issues of liability for unpaid VAT by overseas sellers, and that these rules have brought about a ten-fold rise in the number of sellers registering for VAT.
What Does This Mean For Your Business?
This report from MPs and the publicity generated by it are likely to be good news for UK sellers who may have lost out to overseas sellers through simply complying with UK tax law and having to charge higher prices. Hopefully therefore, the report may put pressure on HMRC and big selling platforms like eBay and Amazon that could lead to a more level playing field, and could, of course, generate more much-needed tax revenue for the UK. It is particularly important for MPs to prioritise the issue now with the extra tax complications of Brexit just around the corner.
This may also be a shot across the bows for all large overseas sellers to warn them to respect the laws of the countries that they operate in and to remind them that they are accountable to governments in many of their lucrative markets.