HMRC has issued over 4,600 joint and several liability (JSL) notices to online marketplaces and overseas traders over the past two years. But some critics remain unimpressed by the government’s efforts.
Introduced in September 2016 amid major criticism of its handling of online VAT evasion, the tax authority can issue JSL notices when it identifies online marketplace providers who are not meeting their VAT obligations.
JSL notices work, as the name suggests, by implicating the online marketplace in any VAT fraud that takes place on its platform. HMRC sends notices to the marketplaces — for example, Amazon — when it finds a seller using the platform but not paying the correct VAT.
If the seller is not removed, Amazon (eBay or Etsy, et al.) are liable for any future unpaid VAT by those sellers. Online marketplaces are required by law to check whether overseas sellers should be registered for VAT and, if so, that the VAT number displayed is valid.
HMRC said JSLs have raked in an extra £207m in VAT and an additional 58,000 overseas businesses registering for UK VAT, an increase of over 3500% from 2015/16.
Last year, HMRC told the public accounts committee (PAC) it expects these notices, combined with the fulfilment house due diligence scheme, to yield just shy of £1bn in extra VAT by 2023. The PAC has asked HMRC to report back in March 2019 with the latest figures.
VAT evasion by overseas sellers has been an ongoing issue for years. Many sellers based outside the EU don’t apply VAT to sales on goods sold through marketplaces like eBay and Amazon.
This enables them to undercut UK businesses by up to 20%. It’s a racket which HMRC estimates costing the public purse between £1bn and £1.5bn, and many consumers are unaware that it’s happening.
Brexit has added a new impetus to this problem. HMRC defines an ‘overseas seller’ in one of two ways: First is simply if you sell goods stored in the UK to UK consumers and don’t have a business establishment in the UK.
You’re also an overseas seller “if you’re based outside the EU and sell goods to a UK consumer, then import them into the UK”. The “outside the EU” is critical here.
VATfraud.org, a campaign lobby dedicated to this issue, has called Brexit a “timebomb” for online VAT fraud. Once the UK exits the EU, “every country in the world, including the EU, will be able to distant sell into the UK with the customer paying the VAT and duty,” the campaign group warned.
“The postman will become the VAT collector for every distant sold package sold into the UK. Prices for all non-UK sellers with stock located outside the UK on Amazon.co.uk will be displayed without VAT at 20% cheaper” and “all goods under £15 from non-UK retailers will be sold VAT free and have a 20% price advantage”.
Mel Stride, financial secretary to the Treasury, said the notices are about “Delivering a fair and level playing field” for the UK’s online traders. “[The] figures show that HMRC, working closely with the major online marketplaces, is making real headway tackling this serious and damaging evasion.”
In April last year, HMRC published a cooperation agreement which marketplaces such as Amazon, eBay, and Etsy agreed to provide data to HMRC, educate sellers on obligations and respond to evidence of non-compliance.
Speaking to AccountingWEB, however, a representative of VATfraud.org was unimpressed with the potency of JSL notices. “96% of the vat they should collect is still going uncollected,” they said.
“The issue with JSL’s is that the only thing eBay or Amazon have to do is make sure the VAT number given to them matches the company name. They don’t have to check whether they’re the legal owners of the VAT number or paying VAT.”
According to the spokesperson, the use of VAT numbers as a measure of legitimacy is inadequate. Foreign sellers, they said, register for VAT numbers and claim that their stock is housed in the UK. VAT ultimately goes unpaid.
A better solution, said the spokesperson, is what’s being done in Germany. From this year, online marketplaces operating in Germany must hold detailed information on third-party sellers, including their German VAT transactions and a special tax office certificate validating their tax affairs.
“The only way to solve the problem is to get platforms to collect the VAT,” said the VATfraud.org representative. “The JSL notices aren’t enough.”