Tax inspectors last month raided warehouses and seized more than £500,000 of goods they suspect were illegally being offered to UK online shoppers at VAT-free prices, reports The Guardian.
The move is part of a crackdown promised by the Treasury after the Guardian highlighted evidence of large and growing VAT fraud on Amazon and eBay, thought to have cost the public purse tens of millions in lost VAT over the Christmas trading period alone.
Treasury minister David Gauke on Thursday admitted the UK appeared to have been “particularly targeted”, and that there was “still much work to be done”. Legions of small overseas traders – about whom HMRC knows little – have been selling to UK shoppers through Amazon and eBay and finding ways to flout the VAT rules.
Responding in parliament to questions from an increasing number of concerned MPs, Gauke said there were now more than 75 live investigations into this kind of suspected VAT fraud. He promised that the number would double by April.
The minister explained to MPs that the boom in online shopping had led to an unprecedented number of goods being imported in small packages into the UK. It was now “much more difficult to spot where tax and duty have been paid” but, he added, “this is a significant issue we are determined to tackle”.
Gauke said HMRC lawyers did not believe it was possible to hold Amazon or eBay liable for lost VAT under current legislation and EU directives.
This appeared to mark a retreat from a previous government stance adopted in the House of Lords only last month. Treasury spokesperson Lord Ashton had told peers HMRC was “looking at all possible options”, including “whether online platforms should be made liable for VAT”.
Some leading VAT academics, including Rita de la Feria, chair of tax law at Leeds University, have insisted existing law does offer HMRC options for holding Amazon and eBay liable.
In Brussels, the European commission is next month expected to announce a series of policy options on VAT reform some of which will be designed to target VAT fraud through such sites.
On Wednesday, the outgoing HMRC chief, Dame Lin Homer, said VAT-evading online sellers from overseas had become a “very big issue”. She said: “We do feel, just as with beer and alcohol, that those people who manage the supply chain should ensure enough diligence is built into it. Marketplace providers have responsibilities.”
In the fine print of its annual report, Amazon appears to hint that it is well aware it could eventually be forced to play a role in policing VAT compliance on its European websites.
Listing the potential regulatory changes that could affect shareholder returns, it tells investors: “A successful assertion by … foreign countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.”