How Brexit could amplify the problem of VAT fraud on marketplaces

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The Public Accounts Committee of the House of Commons has today published its report regarding VAT fraud on marketplaces including  eBay and Amazon. You can find our round-up of the key points and findings here.

The report is thorough and wide-ranging, advising that HMRC work more closely with platform providers to tackle VAT fraud on marketplaces as well as acknowledging there is much more work that can be done with fulfilment houses and also, potentially, the need for greater powers to tackle what they consider a complicated problem.

But one of the most interesting comments in the report relates to Brexit and the concern that Britain’s departure from the European Union could actually exacerbate the issue. In short, close geographic neighbours could be incentivised to utilise the various loopholes usually exploited by sellers further afield, often in China, and the British Exchequer could lose even more revenues that should be paid in VAT.

The report says: “Online VAT tax evasion is already a complicated issue, and we are concerned about HMRC’s ability to deal with new challenges to the problem which may be posed by the UK’s exit from the EU. There is considerable uncertainty over the exact terms on which the UK will leave the EU. It is therefore difficult to be sure of its effect on online VAT fraud. Sellers based in the EU may end up operating under the same VAT terms as currently apply to non-EU sellers and therefore may also be tempted to not charge VAT in the same way. Evidence exists, such as the recent European Anti-Fraud Office (OLAF) report on customs duties, that highlight significant control weaknesses at the UK border even before the UK exit from the EU. Border controls will remain important to the problem of online VAT fraud even when the other measures (joint and several liability, the Fufilment House Due Diligence Scheme and split payments) are in place. HMRC expects leaving the EU to pose four big challenges to the department as a whole: customs; indirect taxes, particularly VAT; data sharing with other EU countries; and the welfare state (with respect to treatment of EU citizens). The Department told us it is confident about its ability to identify new emerging risks but we remain sceptical about HMRC’s ability with its current resources and skill set to rise to the many challenges that are ahead.”

This comment, from a Tamebay perspective, is the most intriguing of the six headlines the committee reported and makes a valid point. The PAC will be keeping a watching brief regarding Brexit and VAT fraud on marketplaces and we’ll doubtless report on this again.

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