PAC demands ‘high-profile enforcement’ against online VAT fraud

In a new report, the public accounts committee (PAC) has called HMRC’s latest estimates of online fraud ‘out of date and flawed’ and has demanded tougher enforcement action against the ‘unfair and illegal tax practices’ of overseas businesses using online trading platforms.

The PAC report, ‘Tackling online VAT fraud and error’, says HMRC has been too cautious in using its new Finance Act 2016 powers, establishing joint and several liability for online marketplaces. No traders have been ‘named and shamed’ for non-compliance and no sellers prosecuted to date for committing online VAT fraud.

The PAC does not believe it is enough for HMRC to rely entirely on these new powers, including joint and several liability, the fulfilment house due diligence scheme being introduced in April 2018, and the introduction at some future date of the ‘split payment’ method of collecting VAT (on which HMRC consulted between March and June this year). The committee would like to see high profile enforcement action, rather than HMRC ‘playing a game of cat and mouse’ with companies based outside the UK.

The report describes the committee carrying out a mystery shopping exercise, showing how easy it was to buy something delivered from a UK base without paying VAT. ‘We were even offered a partial refund when we repeatedly requested a VAT invoice,’ the report said.

The PAC’s recommendations to HMRC in the report include:

·        producing an updated estimate by March 2018 of the scale and impact of the online VAT fraud tax gap (the latest estimate is between £1bn and £1.5bn in 2015/16);

·        speeding up the introduction of new measures, such as the ‘split payment’ method of collecting VAT;

·        exploring new measures to make platforms liable for VAT evasion, such as requiring online marketplaces to withhold VAT when a sale is made and pass it directly to HMRC;

·        putting in place by March 2018 an agreement setting out collaborative working arrangements between HMRC and all online marketplaces, which should include a requirement to show a valid VAT number for any non-EU trader selling goods to customers in the UK, where those goods are already in the UK;

·        reporting to the committee by March 2018 with targets for reducing the amount of VAT lost through non-compliant online sales, with details of how much HMRC has collected from newly registered traders; and

·        undertaking a definitive assessment of the scale of the fulfilment house industry (HMRC currently estimates the number to be somewhere between 500 and 3,000), setting out how HMRC intends to enforce the process of registration for the new scheme.

Meg Hillier MP, chair of the PAC, said: ‘HMRC needs to be far tougher in protecting the interests of British businesses and taxpayers.’ Online marketplaces ‘continue to profit from the actions of rogue traders,’ she said. The marketplaces ‘can and should do more’ to drive out these practices and should ‘cooperate fully with HMRC in tackling non-compliance,’ Hillier added.