According to the National Audit Office, the Government was losing up to £1.5bn a year as the result of tax evasion by overseas companies selling goods online to consumers in the UK without charging or accounting properly for VAT. HMRC estimates indicated that non-EU sellers, mostly from China, accounted for 60 per cent of the fraud, accepting that the practice “may have some effect on the profitability of legitimate businesses”.
The problems for the Exchequer had been known for some time and in April 2018 HMRC reached agreement with a number of online marketplaces which would allow HMRC access to information held by those platforms. Included within these were two global internet giants namely eBay and Amazon.
As part of the agreement, eBay and Amazon committed to:
- Provide data to HMRC
- Educate sellers on their obligations as regards UK taxes
- Respond to evidence of non-compliance
The specific commitments made by the signatories to the agreement include requirements for eBay and Amazon to provide data and the full contact details of traders both on a voluntary basis and in response to a legal notice, thereby enabling HMRC to identify potentially fraudulent and ‘off record’ traders and also calculate the scale of their sales.
The agreement also requires marketplaces to educate sellers on their VAT responsibilities. In cases where fraud is suspected, eBay and Amazon will need to ensure a business registers for VAT and, if there is ongoing non-compliance, block sales from these individuals/companies on their websites.
Whilst the agreement was primarily intended to address the loss of VAT from overseas traders, the information provided by eBay and Amazon has also allowed HMRC to identify a plethora of UK based individuals (and companies) who are trading on these platforms and making profits which have not been fully disclosed to HMRC, and therefore not taxed. In many cases, in view of the level of turnover achieved, there is also a loss of VAT as a result of a failure to register for VAT.
In the most serious cases, HMRC are pursuing prosecutions of the online traders. John Woolfenden from Manchester was jailed for two years in September 2014 for selling CD’s and DVD’s on eBay (and other platforms) and evading duty of just under £300,000.
Many others have been given the opportunity to settle with HMRC using the Contractual Disclosure Facility – a civil settlement process which guarantees immunity from prosecution in exchange for a full disclosure of all irregularities.
How can WLH Tax help
WLH Tax has extensive experience of representing online traders, especially those that use eBay and Amazon, who have either paid no tax on their business profits or who have understated their income. If you are currently under investigation by HMRC, or you wish to make a voluntary disclosure of any profits from your online sales, please contact us for a free, confidential and no obligation discussion. We are happy to have an initial free of charge meeting with prospective clients.