If you were to read some of the reports on the Public Accounts Committee (PAC) session on tackling online VAT fraud and error which took place on Thursday the 14th September 2017 you might be forgiven for thinking that marketplaces (eBay and Amazon in particular) were doing their best to evade VAT.
The truth is that the session wasn’t nearly as adversarial as the press would have you believe and whilst Joe Billante, eBay Vice President (on left in image), acquitted eBay pretty well, Steve Dishman, Amazon Vice President for Taxes, Europe (on right in image), took more fire as they are a fulfillment house as well as a marketplace.
The headline news is that £1.5 billion of VAT isn’t being paid, but Joe Billante, eBay Vice President and Chief Financial Officer for EMEA, told the committee that he simply didn’t recognise these figures. To put it into perspective here’s what was revealed about eBay’s activities in preventing VAT fraud:
eBay’s VAT Fraud efforts
eBay have 210 people in risk management working specifically on VAT fraud activities as part of their wider Trust and Safety team and they have gone far further than simply acting on information shared by HM Revenue and Customs.
HM Revenue and Customs have sent over 77 Joint and Several Liability Notices (basically holding the marketplace responsible for unpaid VAT if they don’t take action on the seller) which have resulted in eBay blocking 184 sellers on their platform.
Outside of HM Revenue and Customs notifications eBay have off their own internal efforts blocked a further 893 accounts.
eBay are more than willing to share information with HM Revenue and Customs when requested, but due to EU law they’re unable to send wholesale data across. In fact both eBay, Amazon, HM Revenue and Customs and the Treasury pointed out that EU law limits their ability to act in certain circumstances. However eBay were very clear that they don’t just suspend the account in question but all linked accounts and when a request is received from HM Revenue and Customs they send data from all linked accounts over.
From the 77 notices received from HM Revenue and Customs the total revenue from the sellers concerned totaled £4.6 million. The total revenue from eBay’s own efforts to block accounts covered 2.3 million listings and totaled £9 million in revenue.
This would suggest that the work from HM Revenue and Customs and eBay on the eBay marketplace only represents a couple of million in lost VAT – far short of the £1.5 billion figure bandied about.
Amazon’s VAT Fraud efforts
Amazon have acted on 416 notices from HMRC (Unlike eBay, Amazon have a strict one account per retailer on their platform so we can assume they’ve blocked 416 accounts). They are focusing on education and providing tools for sellers to assist with VAT compliance.
Steve Dishman, Amazon Vice President for Taxes, Europe explained that they’ve negotiated discounted rates with accounting firms and introduced a technology tool to account for EU VAT in just three or four clicks with the ability to import data from other marketplaces including eBay. What they didn’t mention is that the cost of these services is relatively high for small businesses!
HM Revenue and Customs’ VAT Fraud efforts
HM Revenue and Customs are running a three pronged approach to VAT by working with the marketplaces, putting a program in place to register fulfillment houses and educating consumers.
The PAC was particularly derisive of the consumer approach saying that they hope HM Revenue and Customs aren’t going to put the burden of VAT compliance on the poor consumer as that’s not a fair expectation. It was pointed out that consumers are hoodwinked when they think they’re buying from a UK retailer just to discover their money has gone to China and many at the PAC had brought along examples of online purchases where when they asked for a VAT invoice the seller had refused to supply as they weren’t VAT registered.
However HM Revenue and Customs did have some good news. The number of online seller from overseas registered for VAT has risen from 700 end of 2015 to 17,537 end of August 2017. 399 joint and several liability notice have been issued and all sellers removed from the marketplaces with an estimate that it’s raised over £350m per year in additional revenue for the treasury.
Everyone agrees that there is more work to be done, but both Joe Billante and Steve Dishman pointed out that they have limited visibility of who is and isn’t paying their VAT. Even if they can confirm a retailer is registered to pay VAT they don’t know if the correct sums are being reported and monies remitted. Yes they can confirm a certain seller has a VAT number but they don’t get to see VAT returns and it’s down to HM Revenue and Customs to verify this.
Indeed HM Revenue and Customs admitted as much acknowledging that the first step is to get companies to register and then in the future VAT audits will be needed to identify companies that may still not be paying the correct amounts.
Could the marketplaces collect VAT?
There was some talk of split payments where the marketplace would be responsible for collecting VAT at the point of sale and passing it directly to the Treasury. This won’t happen any time soon as there’s not a single example of this practice anywhere in the world and it’s against EU law.
The practicalities are almost mind boggling should it be brought in. For instance what about merchants on special VAT schemes such as the Flat Rate or Margin schemes? How would the marketplace know if I should be VAT registered as eBay and Amazon don’t know how much I sell on each others platforms let alone on my website, other marketplaces and any off-line activities I might be involved with? Is the marketplace capable of determining VAT rates for different products accurately? These are all questions that would need to be answered but for the moment it’s an idea that legislation would need to pass Parliament for (or the EU whilst we’re sill members).
Even if the marketplace could get the numbers right, some (like eBay) don’t even handle the payments as they’re done through a separate payments entity.
eBay and Amazon both act on requests for information from HM Revenue and Customs and take down accounts when a Joint and Several Liability Notice is issued.
Both marketplace are doing some work on their own over and above what HM Revenue and Customs and the law require.
Amazon are in a stickier situation as they handle payments and in some cases the physical goods through FBA.
The next big challenge will be for HM Revenue and Customs to register every fulfillment house in the country of which it’s thought there are definitely 500 but a further 2,500 businesses are also suspected of acting as fulfillment businesses.
This is not the first and won’t be the last time that marketplaces and HM Revenue and Customs appear before the PAC. Indeed it was much more a fact finding session than to apportion any blame. Watch this space, there will be further sessions in the future as all parties agree that there is more to be done to tackle this issue.