Online marketplaces like Amazon and eBay are profiting from fraud by sellers who dodge the VAT they should charge on sales in the UK, a parliamentary report has said.
The “unfair and illegal” practice allows sellers based outside the EU to undercut British retailers by 20 per cent, hitting sales hard and forcing many to cut staff or even shut down, said the House of Commons Public Accounts Committee (PAC).
Customs authorities have been “too cautious” in pursuing fraudsters, said the committee, which said the loss to taxpayers may be much higher than the “out-of-date and flawed” HM Customs and Excise estimate of £1bn to £1.5bn.
The problem is growing fast as online purchases increased from 2 per cent of retail sales in 2006 to 14.5 per cent in 2016. And the committee warned it will “only get more complicated” due to uncertainty over customs arrangements when Britain leaves the EU.
Under tax laws, traders based outside the EU selling goods to customers in the UK 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.
Both Amazon and eBay told the committee that they took action to remove “bad actors” from their sites.
But the report found that it was “bewildering that these big companies have taken such little action to date”, adding: “Amazon and eBay, amongst other online marketplaces, continue to profit from fraudulent activities taking place on their sites”.
The cross-party committee called for “much more urgency” from HM Revenue and Customs, which “has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud”.
The PAC 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 UK consumers, where the items are in the UK.
Committee chair 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.”
An eBay spokesperson 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.”