Amazon and eBay profiting from online VAT fraud, says watchdog

Amazon and eBay are profiting from online VAT fraud while HM Revenue and Customs is failing to use its powers to launch a crackdown, according to parliament’s spending watchdog.

The public accounts committee found that marketplaces run by the internet giants are allowing overseas firms to sell goods without paying 20% VAT – a manoeuvre which is undercutting UK firms.

In a report into online fraud published on Wednesday, MPs said the tax authorities had been “too cautious” in pursuing fraudsters.

The loss to the public purse may be much higher than the “out-of-date and flawed” HMRC estimate of up to £1.5bn, they said.

Meg Hillier, the committee’s chair, said: “Online marketplaces tell us they are committed to removing ‘bad actors’, yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders.”

Online purchases have increased from 2% of retail sales in 2006 to 14.5% in 2016. MPs warned it would “only get more complicated” because of uncertainty over customs arrangements when Britain leaves the EU.

Under tax laws, traders based outside the EU selling goods to customers in the UK must charge VAT if the items are present in the UK at the time of sale.

Many do not charge the 20% levy, even though the goods are stored in up to 3,000 warehouses known as “fulfilment houses” around the UK.

The report found that it was “bewildering that these big companies have taken such little action to date,” adding: “Amazon and eBay, among other online marketplaces, continue to profit from fraudulent activities taking place on their sites.”

The cross-party committee called for “much more urgency” from HM Revenue and Customs, which “has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud”.

The committee has told HMRC to put in place by March a cooperation agreement with online marketplaces.

Reacting to the report, the pressure group Retailers Against VAT Abuse Schemes said HMRC had shown a “complete dereliction of duty” in tackling preventable online fraud.

Amazon and eBay told the committee they took action to remove “bad actors” from their sites.

An eBay spokesman said the company had been working with HMRC to continue to ensure the site was the best possible place to do business.

An Amazon spokesman said the company was reviewing the committee’s recommendations. “We offer extensive information, training and tools to assist sellers in their VAT obligations, and we work closely with HMRC on this matter,” he said.

An HMRC spokesman said the UK had led the way in holding online marketplaces jointly liable for VAT evaded overseas.

“We introduced tough new rules last year allowing us to hold online marketplaces liable for unpaid VAT by overseas sellers.

‘The new reforms will secure an extra £875m in tax to help pay for vital public services,” he added.