Over 4,600 online sellers have been red-flagged to marketplaces for tax evasion during the last two years, reveals HM Revenue and Customs (HMRC).
As a result, many sellers have had their online stores deleted.
The red flags, known as Joint and Several Liability (JSL) notices, were introduced in 2016 to protect British businesses from being undercut by overseas sellers committing VAT evasion.
HMRC sends notices to online marketplaces when it finds a seller using its platform not paying the correct VAT. If the seller is not removed from the site, the marketplace will be pursued themselves for any future unpaid VAT by those sellers.
Since the rules were brought in, HMRC has sent thousands of JSL notices to online marketplaces and seen over £200m of extra VAT being declared by these overseas sellers.
During the same period, the number of applications for VAT registration by overseas businesses grew to 58,000. This compares to just 1,650 applications between 2015 and 2016.
Financial Secretary to the Treasury, Mel Stride MP, said: “Delivering a fair and level playing field for businesses is a top priority for this government.
“These figures show that HMRC, working closely with the major online marketplaces, is making real headway tackling this serious and damaging evasion.”
Emma Jones, founder of small business support network Enterprise Nation, said: “These rules protect the hundreds of thousands of legitimate sellers who are simply trying to run a business via online marketplaces, we give it our full support.”
Online marketplaces are required by law to check if overseas sellers should be registered for VAT and, if so, that the VAT number displayed is valid. If they don’t, marketplaces can be liable for any tax owed to HMRC by these sellers.
Taken together, measures announced at Budget 2016 and Autumn Budget 2017 will help protect around £1 billion of tax revenue by 2023, and further enhance HMRC’s ability to ensure everyone is paying their fair share.