Amazon and eBay profit from ‘rogue traders’ who defraud taxpayers and businesses to the tune of £1.5billion a year, MPs have found.
Online sellers based overseas benefit from dodging VAT they should charge on sales in the UK, allowing them to undercut British firms, according to a parliamentary report.
The ‘unfair and illegal’ practice allows retailers based outside the EU to charge 20 per cent less than UK companies, the Commons Public Accounts Committee (PAC) said.
When online VAT fraud occurs, marketplaces like Amazon and eBay continue to earn commissions ‘and therefore profit from people who are defrauding the British taxpayer’.
Amazon and Ebay are dodging VAT because as a non-EU company they are allowed to charge 20 per cent less than UK ones
The MPs called on the Government to step up the fight against online VAT fraud, which has hit sales, forcing many UK businesses to cut staff or even shut down.
They said customs authorities have been ‘too cautious’ in pursuing fraudsters, and added that the loss to taxpayers may be even higher than the estimate of between £1 billion and £1.5 billion.
HM Revenue and Customs’ estimate of the impact of online VAT fraud is out-of-date and flawed, the committee heard.
The scale of the problem is growing, with online purchases increasing from two per cent of retail sales in 2006 to 14.5 per cent in 2016.
When Britain leaves the EU, the problem will ‘only get more complicated’ due to uncertainty over customs arrangements, the MPs said.
Under tax laws, traders based outside the EU selling goods to British customers must charge VAT if the items are present in the UK at the time of sale.
But many do not charge the 20 per cent levy, even though the goods are stored in up to 3,000 warehouses known as ‘fulfilment houses’ dotted around the UK.
The committee described HMRC as ‘playing a game of cat and mouse’ with companies based outside the UK, and called on the authority to take high-profile enforcement action.
It said online marketplaces have not been taking the issue of VAT fraud seriously.
Both Amazon and eBay told the committee they took action to remove ‘bad actors’ from their sites.
But the report concluded that it was ‘bewildering’ that the internet giants have taken ‘such little action to date’.
Fellow online marketplace eBay has also come under fire for VAT evasion, with MPs demanding a Goverment crackdown
‘Amazon and eBay, amongst other online marketplaces, continue to profit from fraudulent activities taking place on their sites,’ it said.
The cross-party committee called for ‘much more urgency’ from HMRC, which ‘has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud’.
The committee also called on HMRC to put in place by March a co-operation agreement with online marketplaces, including a requirement for them to ensure that a valid VAT number is showing for any non-EU trader selling goods to British consumers, where the items are in the UK.
Committee chair and Labour MP Meg Hillier said: ‘Online VAT fraud is hugely damaging yet, as online sales continue to grow, the response of HMRC and the marketplaces where fraudsters operate has been dismal.
‘HMRC needs to be far tougher in protecting the interests of British businesses and taxpayers. As a priority it must inject more urgency into enforcement action. But it should also push the case for further new powers.
‘Online marketplaces tell us they are committed to removing ‘bad actors’, yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders.
‘They can and should do more to drive them out and we will expect online marketplaces to co-operate fully with HMRC in tackling non-compliance.’
Labour MP Peter Dowd, the shadow chief secretary to the Treasury, said large multinational corporations had ‘outfoxed’ HMRC.
An eBay spokesman said: ‘We want a fair marketplace for all our buyers and sellers.
‘That’s why we have been working together with HMRC – and going above and beyond their requirements – to continue to ensure that our site is the best possible place to do business.’
An Amazon spokesman said: ‘We are reviewing the committee’s recommendations and support efforts to ensure businesses and individuals selling across all marketplaces are VAT-compliant.
‘We offer extensive information, training and tools to assist sellers in their VAT obligations, and we work closely with HMRC on this matter sharing all requested data on non-EU sellers and promptly removing any seller they inform us is not VAT compliant.’