VAT avoidance could cost the UK tens of millions of pounds this Christmas thanks to the increasing number of non-EU sellers on sites such as Amazon and eBay. The huge increase in traders from countries such as the USA and China is difficult to control, resulting in an overly complicated system which is open to abuse.
The problem is caused by international sellers deliberately declaring goods as being of a lower value to the price they have been sold for. As any goods under £15 in the UK, or €22 in the majority of EU member states, are exempt from VAT, this encourages sellers from elsewhere in the world to identify items as being under this value and cashing in on the tax exemption. What’s more, many Chinese businesses are now opening Chinese-run warehouses in port cities around the UK, which means they can offer both highly competitive prices and quick delivery.
The law states that overseas businesses selling on Amazon and eBay need to apply VAT on all UK transactions no matter how low their UK turnover. However, many companies do not disclose VAT numbers when listing on these sites. When a VAT receipt is requested, some give invalid VAT numbers or clone those belonging to other businesses, whilst other sellers openly state that they don’t apply VAT.
Amazon and eBay have stated that they will cooperate with HMRC in cases of tax underpayment, but also state that it is the responsibility of individual sellers to ensure that they are complying. Both companies have said that they are under no obligation to police compliance by sellers, and that they have no liability in cases of sellers committing VAT fraud.
There has been recognition within Brussels that VAT rules are both overly complicated and out of date when applied to internet commerce. However, whilst there are plans for a major review – including the scrapping of VAT exemption for low-value items – it is likely to be years before any changes come into effect. At that stage, the UK is likely to either be on the brink of beginning life outside the EU or may already be there.