The House of Commons Public Accounts Committee has just published its report into online marketplaces VAT fraud. It’s based on a series of hearings held earlier in the year and written submissions from interested parties. We wrote about the process and evidence last month: eBay and Amazon account for VAT fraud to Public Accounts Committee.
You can download and digest the full report here. But here the major points and recommendations.
“HMRC’s estimate of the impact of online VAT fraud is out of date and flawed.”
The committee believes that HMRC’s estimate, based on 2015-16 that lost VAT revenue due to online fraud totals to something like £1bn to £1.5bn is not realistic largely because the speedy growth of online selling. The PAC has ordered HMRC to come up with a new assessment of what it could be costing the exchequer in lost revenues and also assess the wider impact of the practice. For instance, how is the competitive advantage of not charging VAT impacting on legitimate VAT compliant online sellers.
“HMRC has been slow to get to grips with the problem and is not yet doing enough to tackle it.”
The report is critical of HMRC and notes that no prosecutions have yet been made but also acknowledges that even with the new powers they were granted in the 2016 Finance Act, they do also need more powers what is a complicated situation. Possible future solutions include making the marketplaces liable for VAT collection and the introduction of “split payments” but the report acknowledge that neither are likely to be implemented any time soon.
“Online marketplaces and HMRC are not doing enough to work together to tackle the problem, and online marketplaces continue to earn their commissions and therefore profit from people who are defrauding the British taxpayer.”
The committee expressed concern that whilst there had been some productive cooperation more was required, they recommend: “HMRC should, by March 2018, put in place an agreement, applicable across the whole online marketplace, that sets out the collaborative working arrangements between HMRC and the online marketplaces, including details of co-operation, data sharing and expectations of a prompt response to evidence of non-compliance. is should include a requirement for all online marketplaces to ensure that a valid VAT number is showing for any non-EU trader selling goods to customers in the UK, where those goods are already in the UK. In the absence of a legal requirement to do so we would expect online marketplaces to implement this measure voluntarily.”
HMRC Should set collection targets and keep the PAC informed of progress
In its submission HMRC said it expected to collect an incremental £50m from its crackdown and by using the existing and new powers. Whilst VAT registrations had jumped considerably, they want HMRC to report back with collection and registration targets next March.
HMRC does not know how many fulfilment houses are in the UK and is therefore unable to systematically target the most blatant route for online VAT tax evasion.
The reports notes that the most agregious related practice was where goods were being held in UK based fulfilment houses and VAT was not being paid. The report notes that this an opportunity and HMRC needs to make an assessment of that industry and the role it can play. We’ve discussed that in another post here.
Will Brexit exacerbate the problem?
The committee expressed its concern in the report that Brexit could well make the problem worse and it pledges to monitor the issue as more information about the Brexit deal emerge. We’ve written about this in another post here.