VAT: too many online traders still not paying fair share

29 June 2018

The Public Accounts Committee sets out steps HMRC should take to build on new measures in fight against fraud.

£1–1.5 billion per year lost from online VAT fraud

We reported in October last year that British business was being hit hard by overseas competitors not charging Value-Added Tax (VAT) when selling in the UK through online trading platforms.

UK taxpayers have been losing between £1 billion and £1.5 billion a year from online VAT fraud. HMRC must do all it can to give UK businesses that play by the rules the level playing field they are entitled to and give out a clear message that the UK is not a soft touch for VAT fraudsters.

Since our report, HMRC has taken several steps to start tackling the problem and it is encouraging that over 27,000 new traders have become VAT registered in the last two years.

Concerns too many traders still not paying fair share

However, HMRC still has a lot to do to check who these traders are and make sure it is collecting the right amount of VAT from them, as well as pursuing those who were already operating. We are concerned that too many traders are still not paying their fair share.

We want to see that HMRC is rigorously checking compliance of newly registered overseas traders, that the Memorandum of Understanding on information sharing between HMRC and online marketplaces leads to worthwhile collaboration, that HMRC is looking at what further powers (e.g. to seize goods) would help it to enforce compliance, and that it is actively considering the pros and cons of other ways, such as collecting VAT directly at the point of sale (known as ‘split payment’), to address this problem.

Concerns have also been raised by UK businesses about the future arrangements for VAT payments post-Brexit for goods entering the UK from the EU. RAVAS and VATFraud have highlighted the potential negative implications for future VAT arrangements when the UK leaves the EU.  This only adds to the many challenges HMRC faces as we leave the European Union.

Chair's comments

Comment from Committee Chair, Meg Hillier MP:

"Online VAT fraud continues to deprive the public purse of huge sums of money that could be put to good use on behalf of UK taxpayers.

HMRC was slow to address this problem and, while we recognise the steps it has now taken in response to our concerns, there is a long way to go.

If HMRC is to make good on its forecast of an additional £1 billion in VAT revenue by 2023 then it must build on the progress made so far.

This will be no simple task given the challenges facing the Department as the UK prepares to leave the EU.

But it is a task that must be tackled in tandem with work required for Brexit—itself a cause of additional uncertainty for honest British traders facing unfair competition from businesses that fail to pay their fair share of VAT.

Those traders need to know HMRC is on their side and prepared to take the fight to the fraudsters. The Department must not take its eye off the ball."

Further information

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