MPs warn Amazon and eBay over online VAT fraud

Internet giants Amazon and eBay have been accused by a government watchdog of profiting from third-party sellers who defraud taxpayers by failing to charge VAT.

The report, published by MPs in the Public Accounts Committee, criticised the sites for allowing overseas online sellers not to charge the 20% tax on sales they make in the UK. It also said HMRC had been “too cautious” in chasing down the “fraudsters”.

The committee said the loss to the taxpayer may be far higher than HMRC’s estimate of £1.5bn, an estimate it describes as “out-of-date and flawed”.

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Both Amazon and eBay said they were working directly with HMRC to rectify the issue, reports the BBC, telling the Commons committee that they are currently taking action to remove “bad actors” from their sites.

The committee’s chair, Labour MP Meg Hillier, described the online VAT fraud as “hugely damaging” for British taxpayers, saying it undercut British businesses.

“The response of HMRC and the marketplaces where fraudsters operate has been dismal,” she added.

“Online marketplaces tell us they are committed to removing ‘bad actors’, yet that rings hollow when those same marketplaces continue to profit from the actions of rogue traders.”

If an item from an online marketplace is shipped from UK soil, it is subject to the standard 20% VAT. But while some foreign firms selling goods to UK shoppers keep part of their stock in UK warehouses in order to provide next-day delivery, much of the merchandise is stored abroad, says the BBC.

The committee’s report includes recommendations for HMRC to set up an agreement with online marketplaces by March next year in order to tackle the issue, and to “inject more urgency” when investigating similar circumstances.

"The new reforms will secure an extra £875m in tax to help pay for vital public services," an HMRC spokesman said.