Online VAT fraud and error may have cost the UK between £1bn and £1.5bn in lost tax revenue in 2015-16, the National Audit Office (NAO) said in a report.
The public spending watchdog said that the figure − an estimate by HMRC − represents between 8% and 12% of the total VAT tax gap of £12.2bn in 2015-16.
VAT rules require that all traders based outside the European Union who are selling goods online to customers in the UK should charge VAT, if their goods are already in the UK at the point of sale.
In these cases, sellers should pay import VAT and customs duties when the goods are imported, based on their value, and charge their customers VAT on the final sale price. The sellers should also be registered with HMRC, and are required to submit regular VAT returns. The sellers must account to HMRC for the VAT charged to customers, reclaiming any eligible import VAT through their VAT return.
However, UK trader groups believe the problem is widespread, and that some of the biggest online sellers of products, such as mobile phone accessories, are not charging VAT, the NAO said.
The report also found that:
- HMRC’s assessment is that online VAT losses are due to a range of non-compliant behaviours, but has not yet been able to assess how much is due to lack of awareness, error or deliberate fraud. Amazon and eBay consider that lack of awareness of the VAT rules is a major element of the problem.
- HMRC tries to detect and correct online VAT non-compliance by using “intelligence” to identify suspected fraudulent traders. UK trader groups have told us there is more that HMRC and online marketplaces could do with seller data which would identify potentially non-compliant sellers. HMRC has started to collaborate with online marketplaces to gather data. But this data exchange is in its early stages and HMRC plans to make it more systematic and extensive.
- HMRC has decided to focus enforcement actions against online VAT fraud inland rather than at the border.
- So far, there have been no prosecutions for online VAT fraud but HMRC has carried out many civil operations against suspected evaders. These civil operations include 279 investigations of businesses and 373 compliance interventions in 2016-17.