Has HMRC stopped investigating VAT-evading eBay and Amazon sellers?

Are UK retailers losing out because HMRC has almost abandoned investigations into VAT-evading sellers on platforms like Amazon and eBay? By Sean Glancy, of UHY Hacker Young.

Between April and December, HMRC only issued 80 data requests to platforms for information about online sellers it suspects of evading UK VAT. In the previous years, it issued 2,684 data requests to online retail platforms such as eBay and Amazon. The number of the requests were the lowest since the tax authority gained these powers in autumn 2016.

HMRC has said that its reduction of data requests to online retail platforms is aimed at reducing the burden on businesses during the Covid-19 period. During this time, it has also been prioritising the roll-out of support schemes, such as furlough.

The powers given to HMRC to investigate VAT-evading sellers were announced after the National Audit Office estimated that online VAT fraud and error cost between £1bn-£1.5bn in lost revenue in 2015/2016. Since 2018, online retail platforms have had to ensure that their sellers display a valid VAT number on the site and report their sales to HMRC correctly. If platforms do not meet these requirements, they can be made jointly liable for any unpaid VAT. It was estimated by HMRC that these new rules would bring in £875m in additional tax.

On January 1 2021, new rules were introduced due to Brexit. These meant that online overseas sellers have more obligations to pay VAT on their sales. Now, they must register for VAT in the UK when selling items under £135 to UK customers.

If the existing rules are no longer being enforced, will the new rules be upheld?

If these new rules are not upheld, it could potentially leave the door open for thousands of foreign sellers to take advantage of the recent surge in e-commerce to undercut British retailers on sites such as eBay and Amazon.

It is clear that supporting the rollout of furlough has been a vitally important job for HMRC over the last year and ensuring businesses aren’t beset with red tape. However, the reallocation of resources to administer furlough should not come at the cost of allowing tax evasion that undermines legitimate UK retailers and e-retailers.

HMRC is in a difficult situation and its decision to prioritise support schemes that were introduced to help businesses during Coronavirus is understandable.

However, if this action is found to be negatively affecting UK sellers on platforms such as eBay and Amazon, HMRC should reconsider this decision immediately to support the UK’s retail sector during the remainder of the Coronavirus period.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.