Government must toughen stance in fight against online VAT fraud

A Public Accounts Committee report has said British business is being ‘hit hard’ by unfair and illegal tax practices by overseas competitors using online trading platforms.

The Committee describes HMRC as ‘playing a game of cat and mouse’ with companies based outside the UK and calls on the authority to take high profile enforcement action. It concludes that HMRC have been too cautious in using new powers, highlighting that the authority ‘has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud’.

Online marketplaces have not been taking the issue of VAT fraud seriously, says the committee. The committee urges HMRC to put in place by March next year an agreement setting out collaborative working arrangements, ‘including details of co-operation, data sharing and expectations of a prompt response to evidence of non-compliance’.

The report states: “This should include a requirement for all online marketplaces to ensure that a valid VAT number is showing for any non-EU trader selling goods to customers in the UK, where those goods are already in the UK. In the absence of a legal requirement to do so we would expect online marketplaces to implement this measure voluntarily”.

HMRC believes that the combination of its new powers — joint and several liability, the Fulfilment House Due Diligence Scheme and the split payments method of collecting VAT— will be sufficient to tackle the problem but these will not produce instant results. But the committee says ‘there is no guarantee that this will be enough’.

The recommendations in the report can be seen here. Among the recommendations:

  • HMRC should, by March 2018, produce an update of its estimate of the scale and impact of the online VAT fraud tax gap
  • HMRC should inject much more urgency to tackling the problem of online VAT fraud, such as speeding up the introduction of new measures, such as the split payment method of collecting VAT
  • HMRC should, by March 2018, put in place an agreement, applicable across the whole online marketplace, that sets out the collaborative working arrangements between HMRC and the online marketplaces
  • HMRC should assess the effectiveness of its response to the problem of online VAT fraud and report to the Committee by March 2018
  • HMRC should, as a pre-requisite to the implementation of the Fulfilment House Due Diligence Scheme, undertake a definitive assessment of the scale of the fulfilment house industry, and how it intends the process of registration for the scheme to work efficiently and effectively
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