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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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22nd July 2023

HMRC has recently introduced new powers that will make it easier to trace and collect the VAT generated by transactions that take place on digital marketplaces. Online VAT fraud has long been a problem for HMRC, but the new measures will clampdown on overseas sellers and help the tax office recoup up to £1.5bn in lost revenue.

As well as boosting the public purse, the new measures will also level the playing field for high street businesses and tax paying online retailers that are being undercut by sellers who evade their VAT responsibilities.   

Not enough was Being Done

The extent of online VAT fraud was first revealed by a parliamentary investigation in October 2017, which found that UK small businesses were being undercut by as much as 20 percent by overseas retailers selling the same goods without VAT.

In the investigation, MPs claimed that HMRC’s response to online fraud had been dismal. This had been mirrored by marketplaces such as eBay and Amazon, neither of which had responded positively enough. The result was that in 2016 alone, HMRC lost between £1bn and £1.5bn in VAT revenues.  

The Introduction of Joint and Several Liability for VAT Fraud

Chancellor Philip Hammond first announced the new laws to counteract the loss of VAT to overseas sellers in his Spring Statement. These ‘world-leading powers’, as claimed by HMRC, allow the tax office to use joint and several liability to make the digital marketplaces directly accountable for the unpaid VAT.

In practice, that means the marketplace will be issued with a notice to remove any overseas or UK sellers that fail to pay the correct amount of VAT on transactions to British consumers. If the marketplace fails to remove the seller then HMRC will seek to recover any future unpaid tax from the marketplace itself.

From 16 March this year, digital marketplaces have a legal obligation to ensure all sellers display a valid VAT number on their online pages. They will also be liable to pay VAT on any sales that take place where they ‘knew or should have known’ a seller was not VAT registered.  

Leading the way in Combating Overseas tax Fraud

This is not the first time the UK has taken the lead in tackling this type of fraud. In September 2016, it was the first country to introduce tough new powers to tackle VAT evasion by overseas sellers. Those powers have already removed over a thousand non-compliant overseas businesses that were selling goods online in the UK.

As of 1 April 2018, certain businesses must also apply to register for the Fulfilment House Due Diligent Scheme. That requires businesses that store imported goods for overseas sellers from outside the EU to keep records and perform certain checks on the goods they are storing.        

Everyone Must pay Their Fair Share of tax

Commenting on the new powers, the financial secretary to the Treasury said: “While the honest majority pay what they owe, some businesses that sell goods online to UK shoppers are failing to pay the correct amount of VAT.

“This behaviour unfairly undercuts businesses trading in the UK that play by the rules, abuses the trust of buyers, and deprives the government of significant revenue that funds vital public services.”