Will the budget address VAT fraud on eBay and Amazon?
Updated: we’ve reported the actual details in the 2016 Budget in this post: Budget 2016: eBay and Amazon “can be made liable” for seller VAT fraud
According to reports in the FT (sadly it’s behind a paywall) there may be measures in the UK budget, due to be delivered by Chancellor of the Exchequer George Osborne on Wednesday, that will address the VAT situation for so-called Chines sellers using online marketplaces but not necessarily paying their fair share of VAT.
As the report in Monday’s FT says: “The Treasury is also under pressure to crack down on the illegal sale of goods VAT-free over the internet by sellers from China and elsewhere after politicians exposed the plight of UK businesses being driven out of business by unfair competition.
One option would be compelling the platforms, such as eBay and Amazon, to check whether all their sellers had a valid VAT number where this was required.
Professor Rita de la Feria of the University of Leeds said that in the same way that banks had been made responsible for tackling money laundering, the e-commerce platforms could be required to police VAT fraud. There could be heavier reporting obligations on the platforms, with the implicit threat that they would be held liable for non-compliance.”
Putting pressure on the marketplaces to ensure that sellers have and are displaying a genuine VAT number where required is a clear and unambiguous step but it’s not necessarily that easy. For one, will traders below the VAT threshold be verified that they don’t need a number? How about merchants who aren’t selling £80k on Amazon but might well be doing VATable volume over multiple IDs or platforms? It’s a tough one and how many sellers want eBay or Amazon prying into their tax affairs?
The good news though is that the issue is on the radar of the media and government so we may well see action.
So, we’ll just have to wait and see. Budgets are always speculated on and pondered before the day but it’s what the man himself says at the Despatch Box that counts and what’s in the full document too. We’ll be tuning in.
It would be fantastic to see some action and for HMRC to hold eBay, Amazon et al responsible. And it’s hardly a leap in the dark.
Amazon already require all sorts of docs to verify an account so why not just add a VAT registration number is required when you hit a certain threshold of sales or we’ll hold all your funds, as they do when you go through payment account verification.
eBay’s policing has been extremely poor on all fronts so a kick in the bollocks for them would be a very good thing.
I don’t trust Osborne or HMRC to do anything quickly though – if they had the will it would have been done years ago. Perhaps George doesn’t want to upset his Chinese trading ‘partners’?
Amazon is a slightly different animal than eBay/Paypal.
The principle of UK taxation is that an entity is taxable if they have a physical presence in the UK. In the case of Amazon, they certainly do have a physical presence and HMRC can certainly require compliance for their users or HMRC could simply place their padlock on the gates of the warehouse.
eBay/Paypal, however, does not have the same physical presence with only a small service office and a computer server or two. HMRC does not have the same leverage over eBay as their presence could be moved offshore overnight. So in eBay’s case, only political pressure using a combination of ‘Corporate Social Responsibility’, and threats to interrupt their trade in the UK (see my post further down) can work.
They must have something in Germany as within a week of us exceeding the threshold for sales there we had a letter from the German VAT office.
It must be possible to police on the platforms, yes it’s more difficult for people with several accounts, but at the very least it will pick up on some sellers that are not playing by the rules.
eBay/Paypal won’t play ball with HMRC and I doubt that HMRC will have much luck with trying to force them to do anything with regard to foreign entities.
HOWEVER, HMRC does have access to the information, by the back door, about which UK domiciled users are actually trading, which is to demand from the banks information about who is receiving payments from Paypal in excess of a certain amount. This is a very easy practical way for HMRC to police evasion as HMRC already have the powers to demand details of any transactions, and the banks are obliged to provide this information. In essence, HMRC can instruct all UK banks to provide them with a memory stick with names and addresses of anybody who has received a Paypal receipt. It doesn’t however get over the problem of foreign businesses with Paypal withdrawals in other jurisdictions.
There was a piece in the Sunday Times about a £2000 threshold being mooted as a tax-free allowance for eBay trading, and I believe this is the first step in tackling evasion. By setting £2000 de-minimus limit, it probably cuts out 95% of eBay sellers who are only occasional sellers. This allows HMRC to concentrate on the 5% who are trading (and one suspects that 1% of this 5% are probably evading).
How to tackle the VAT evasion of foreign entities is more difficult, and the only way that HMRC can deal on this is to ‘lean’ on eBay by suggesting to them that if they don’t comply, they will make life difficult for their users by trawling through the information that they can get hold of (i.e., suggesting that they will lower the de-minimus limit above and send tax enquiry letters to all users – and eBay wouldn’t like this).
HMRC or like a business they will tackle what is within their resources or what is cost effective ,they dont have the man power to stop every evasion the easy profitable and weak come first, ebay amazon would run then ragged in the courts if they squeeze them too hard
This is such an easy issue to resolve. The UK Authorities can threaten third party liability for the VAT fraud if eBay and Amazon do not take minimum steps to ensure VAT compliance. This is a similar issue to handling stolen goods… the definition to handling stolen goods is very broad and you cannot plead ignorance when you knew or should have known that they were stolen. eBay and Amazon are skating on very thin ice when they claim ignorance of this issue and saying “we tell everyone of their obligations” just isn’t good enough when they are handling clearly fraudulent transactions and making money from it.
There are 2 simple EU Laws regarding VAT Fraud.
1) Supply Chain Liability – Amazon FBA is in supply chain. So HMRC & .gov need to make it clear to Amazon they are just as liable as the sellers committing the fraud.
That will soon make Amazon sort our their warehouse!!
EU have already said Amazon is liable. So we just need UK to follow that up
2) Making profit from a fraudulent transaction. Amazon, eBay & Paypal make £100’s of millions from VAT Fraud transactions.
The EU Principal Vat Directive says no one can profit from fraud.
Again HMRC & .gov must let Amazon, eBay and Paypal know the profit made from each vat fraud transaction will clawed back to pay off the evaded VAT.
The quote from Executives of several ecommerce companies made me laugh “they were working with HMRC to see whether they can do more to tackle this form of evasion, but said they were hampered by the complexity of the rules”
Feeble excuses, this is what they really meant “they were working with HMRC to see whether they can do more to tackle this form of evasion, but said they were unwilling to help because it would hamper the huge profits they make from the fraud”
There is a campaign at vatfraud.org and on twitter @vatfraud
Campaigns are all well and good, but what would be the resolution to this issue? I honestly do not think there is one that will actually make chinese sellers trader fairly and legally.
The simplest remedy to ensure non compliance by sellers who use online market places is for HMRC to extend the joint and several liability measure to those that provide ancillary services. This would mean online sellers would become liable for civil recovery action to recover lost VAT.
Difficult to do when the ‘partner’ is registered in Luxembourg.
In any case, be careful what you wish for. Would you like eBay/Paypal to retain your funds for 6 months rolling to cover any potential tax liabilities that they may be severally liable for (that they don’t yet know about) before they allow you access to your funds?
they are never going to completely stamp out vat/tax fraud on ebay/amazon but there is some very simple measures HMRC and the goverment can do to hugely reduce it , these measures should of been done years ago in 2010
Such as what?
HMRC should start seize UK stock starting with Amazon FBA warehouse. That will give people a wake up call.
Also there are half a dozen Chinese owned fulfilment centres in the UK. I believe HMRC have already started raiding them.
We have noticed a lot of big eBay sellers accounts being shut down recently.
When I say big £10million plus
HMRC should freeze overseas amazon FBA seller accounts and stock unitl VAT is paid on any sales they have made since they started selling on amazon , if payment is not made within 90 days , sell the stock at auction
If they made them display vat numbers then chinese sellers would just register for vat, but still not pay any or file returns. hmrc are not going to go to china to track them down. Many chinese sellers already do this just to get cheaper seller fees.
yes i agree that is a problem , a lot of chinese sellers now register on UK companies house and obtain vat numbers in that company account and simply let the company be struck off after a year and dont pay any vat but still use the vat number to claim vat free amazon/ebay fees which for these big companies can mean £1000s saved just on the fees
its a win win situation for them , on the surface they look legit with all the correct company information displayed plus they get reduced fees
Perhaps get eBay & Amazon to collect VAT at source. I think Amazon USA does this already
If the HMRC sort this issue it will be a big boost to genuine UK small businesses selling on the venues and give them half a chance of competing
Well, it is in there
4.28 Tackling VAT evasion by overseas sellers
The government is taking firm action to protect the UK market from unfair online competition. Some overseas traders from beyond the EU avoid paying UK VAT, undercutting online and high street retailers and abusing the trust of UK consumers who purchase goods via online marketplaces.
Budget 2016 announces action that will help to protect consumers and level the playing field for businesses. HMRC will be able to require non-compliant overseas traders to appoint a tax representative in the UK, and will be able to inform online marketplaces of the traders who have not complied. If traders continue to evade VAT and no action is taken to prevent the fraud, then online marketplaces can be made liable for the VAT.
The government will also introduce a due diligence scheme for the fulfilment houses where overseas traders store their goods in the UK. This will make it harder for VAT evading firms to trade. While the government continues to take action domestically, the global nature of the fraud means international action is also required. The UK has already raised this issue with EU and international partners and the EU and OECD’s current work programmes include further work to help combat this fraud.