Amazon Deemed Seller VAT fraud reform would raise tax revenues and tackle fraud

Would you like an end to the rounds of Amazon KYC demands that come every year or so, requesting paperwork to prove that you are a UK seller? That may be coming if the Government moves to implement new rules around the Deemed Seller.

Currently, if you’re a UK seller you register to sell on Amazon and deal with your own VAT returns. However, due to the number of overseas sellers not paying VAT, Amazon (and other marketplaces) now act as a Deemed Seller and collect VAT on their behalf.

Sounds simple enough, but since VAT Deemed Reseller rules were introduced in 2021 to combat VAT evasion by overseas sellers on online marketplaces, the UK has have seen more sophisticated forms of fraud emerge – including the use of shell companies, falsified documents, and a cottage industry built around circumventing the current regime by certain overseas sellers. Despite measures by the Government and online marketplaces’ strong controls, these evolving tactics are making it increasingly difficult to detect and prevent fraud.

Domestic sellers get caught up in the mix with disbursements on hold while they try to prove that they are UK based.

In last year’s Budget, the Government indicated they may look to consult on this issue, and extend reseller rules to all sellers (overseas and domestic), thereby closing a loophole which some overseas bad actors take advantage of. Without a formal timeline, however, many British small business and tax campaigners are calling for the Government to move more quickly. There’s also a quick win available for the Treasury to raise an extra £700 million a year for the exchequer should they reform the rules according to Amazon’s calculations. Without a formal timeline, however, many British small business and tax campaigners are calling for the Government to move more quickly.

The British Independent Retailers Association (BIRA) agree with Amazon and have written to Dan Tomlinson MP, Exchequer Secretary to the Treasury, to urge the Government to bring forward a consultation on extending VAT online marketplace liability rules, to address clear unfairness in the current system, which disadvantages honest British businesses and allows fraudulent sellers to compete on an uneven playing field.

Amazon’s position is very clear – they support reform to reduce fraud and increase tax paid to the UK Government. The UK’s National Audit Office and Public Accounts Committee say that it could take 5-10 years to implement, and noted this is too long. They would like to see changes now – Specifically, Amazon believe that extending Deemed Reseller rules to apply to all sellers – whether they are based in the UK or overseas – will immediately close this loophole and create a fairer environment for compliant UK small businesses.

Amazon say that the Deemed Seller approach for both foreign and domestic UK merchants would streamline VAT collection for HMRC and reduce administrative burdens for both authorities and legitimate sellers.

BIRA, in their letter, agree saying that they urge the Government to consult on this issue as soon as possible to demonstrate a clear commitment to tackle fraud and level the playing field for UK businesses and increasing tax revenues for the Exchequer from non-compliant businesses.

BIRA also note concerns about potential impacts on the smallest sellers, particularly those below the VAT threshold. They believe any reform can and should be developed in a way that protects small firms from unintended consequences or additional administrative burdens, for example by excluding unregistered businesses.