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Crackdown on online sellers

HMRC crackdown on VAT evasion by online overseas sellers recoups over £200m

Elizabeth Wilson 16 January 2019 No comments

HMRC’s crackdown on online overseas sellers has resulted in an additional £205 million of VAT being declared since new rules to tackle tax evasion were introduced in 2016, according to a recent press release.

Joint and several liability measures

New joint and several liability rules for online marketplaces were introduced in September 2016 (see our previous blog article for further details). Since then HMRC has issued Joint and Several Liability (JSL) notices, known as “red flags”, to online marketplaces such as Amazon and eBay when it finds a seller using its platform is not paying the correct VAT. If the seller is not removed from the site, the marketplace will be pursued themselves for any future unpaid VAT by those sellers.

The red flags were introduced to protect British businesses from being undercut by online overseas sellers committing tax evasion. Online businesses, often based in China, illegally sell into the UK at a lower cost by avoiding UK VAT registration.

Increase in VAT registrations by overseas businesses

Over 4,600 online sellers have been red-flagged to marketplaces in the last two years and many have had their online stores deleted. During the same period the number of applications for VAT registration by overseas businesses was over 58,000, compared to just 1,650 applications in the preceding year.

In 2018, HMRC asked online marketplaces operating in the UK to sign an agreement to educate sellers and assist HMRC in tackling online VAT fraud (see our blog article here). To date, seven marketplaces have signed the agreement.

Mel Stride, the Financial Secretary to the Treasury, said:

“Delivering a fair and level playing field for businesses is a top priority for this government. These figures show that HMRC, working closely with the major online marketplaces, is making real headway tackling this serious and damaging evasion.”