HMRC reduces checks on online sellers despite VAT fraud risk

The UK tax authority has drastically scaled back inquiries into online sellers using platforms such as Amazon and eBay, despite concerns over VAT evasion and complaints from bricks-and-mortar retailers.

Between April and December 2020, HM Revenue & Customs sent just 80 individual data requests to platforms about sellers using their service, down from 2,684 requests in the 2019-20 tax year, according to figures from a freedom of information request.

VAT evasion by overseas sellers on online platforms was estimated by HMRC to cost £1bn-£1.5bn in lost tax revenue in 2015-16, according to the National Audit Office. High street retailers have argued it is a reason why some of them are struggling to compete against online outlets.

HMRC said the plunge in data requests was because of resource reallocation to manage coronavirus support measures, such as the furlough scheme.

“The low numbers of requests for data in the 2020-21 tax year reflects the fact that the Covid-19 pandemic has meant that this has been a difficult time for businesses, and we recognise the impact of our data requests and the extra burden these would cause at this time,” HMRC wrote in its FOI response.

Online marketplaces need to be a level playing field for all sellers and right now, HMRC is allowing sellers overseas to have an unfair advantage.

But retail groups expressed anger about the reduction in checks, warning that this would encourage VAT-evading importers to undercut tax-compliant UK-based companies.

Richard Allen, head of campaign group Retailers Against VAT Abuse Schemes, said UK tax inspectors had “deserted their posts”, adding, “HMRC’s attitude seems to be if you’re outside the UK, there’s nothing they can do.”

Sean Glancy, partner at accountancy firm UHY Hacker Young, which made the FOI request, said: “Online marketplaces need to be a level playing field for all sellers and right now, HMRC is allowing sellers overseas to have an unfair advantage.”

The 80 requests sent last year was the lowest number since HMRC gained such powers in autumn 2016. Figures released under the FOI show there were 299 notices issued in 2016-17, 1,556 in 2017-18 and 2,317 in 2018-19.

A number of online platforms, including Amazon, Asos, eBay and Etsy have signed up to providing HMRC with data about businesses operating on their marketplaces that sell to UK customers. This agreement, published in 2018, says the platforms are providing data to “assist HMRC with tackling online VAT fraud and error”.

Glancy said he understood Covid-19 had made life more difficult for everyone and HMRC had done a “vitally important job” supporting furlough, but that “can’t come at the cost of allowing tax evasion to run out of control”.

HMRC’s reduced resources for querying online sellers also raised questions about its ability to enforce new rules that were introduced in January, Glancy said. These require online overseas sellers to register for VAT in the UK when selling items under £135 to British customers.

HMRC said it had “continued to prioritise tackling fraud and criminal attacks throughout the pandemic, as well as supporting our customers”.

It added: “HMRC regularly asks for data from third parties which is used to identify areas where we need to educate customers on their obligations. We also use the data to identify non-compliance and support customers to get their tax affairs up to date.”