British businesses are being hit hard by unfair and illegal tax practices by overseas competitors using online trading platforms, according to a report by the Public Accounts Committee (PAC) of MPs.
In their report, the committee warns that online sellers who do not charge VAT when they should can undercut prices offered by UK businesses by up to 20 per cent, “forcing many to lay off staff or even go out of business”.
Taxpayers are also losing out as online VAT fraud leads to a significant loss of revenue to the Exchequer, depriving public services of funds at a time of austerity. HM Revenue & Customs (HMRC) estimates that UK taxpayers lost £1 billion to £1.5 billion in 2015–16 from online VAT fraud. The Committee concludes the authority’s estimate of the impact of such fraud is “out of date and flawed” and sets out measures for HMRC to address this.
The MPs describe HMRC as ‘playing a game of cat and mouse’ with companies based outside the UK and calls on the authority to take high profile enforcement action. It concludes HMRC has been too cautious in using new powers.
Meg Hillier, the Labour MP for Hackney South and Shoreditch who chairs the PAC, 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 cooperate fully with HMRC in tackling non-compliance. Our Committee’s own mystery shopping exercise demonstrated just how simple it is to buy goods online without paying VAT. We got no sense that the traders responsible felt under any obligation to pay their dues.
“Clearly this is not good enough. The message must go out loud, clear and backed by the full weight of law: the UK is not a soft touch for VAT fraudsters.”
The PAC pointed out that just to register to sell a few personal belongings on eBay, for example, a seller has to provide numerous details, yet the overseas seller cheating on VAT can do so with relative ease.
