It has been claimed that up to £2bn of VAT is being lost on sales though online marketplaces like Ebay and Amazon each year. HMRC have been targeting online sellers for a couple of years as they believe a lot of small UK businesses are trading online without being properly registered and without paying the correct tax. However the latest claims about unpaid VAT on online sales relate to imports by businesses outside of the EU.
Campaign group RAVAS have raised the issue of UK businesses being undercut by importers who are deliberately avoiding paying VAT. The importers are doing this by under declaring the value of the goods they are sending to customers. Small packages sent directly to a UK customer from outside the EU which have a value of less than £15 are exempt from VAT. By under declaring the value of the good they are sending ecommerce operations based outside the EU can avoid paying VAT and therefore undercut VAT registered UK sellers by 20%.
There have also been claims that many sellers on sites like eBay and Amazon avoid charging VAT by simply not telling people they are VAT registered or by using fake VAT numbers.
Experts in ecommerce sales and tax at both the UK and EU level acknowledge that there is an issue with online sellers avoiding VAT payments. Due to the volume of sellers and the amount of parcels being imported into the UK it is currently very difficult for the authorities to check whether the correct amount of VAT is being paid on all online sales. Some experts have suggested that sites like eBay and Amazon should be forced to automatically check the VAT status of sellers and to make sure VAT is being charged where needed. Both eBay and Amazon see it is the seller’s responsibility to comply with VAT rules but say they will co-operate with HMRC if they raise questions about specific sellers.
One possible solution to this issue is for HMRC to receive powers to access data about payments going through online ebay, Amazon and Paypal. They initially asked for these powers earlier this year as part of their campaigns to work out who is trading online without being registered. Having access to this data would also potentially allow them to see the volume of sales being made by different businesses online and to work out the VAT and other taxes that should be being paid as a result.
When should online sellers charge VAT?
One of the issues around VAT payments by online sellers is the complexity of the rules. Whether or not you need to register for and charge VAT when selling online depends on what you are selling and where your customers are. If you are selling digital goods to private individuals in the EU then you are likely to have to register for the VAT MOSS scheme regardless of the amount you are exporting.
If you are selling physical goods within the UK then you won’t normally need to register for VAT or charge VAT until your turnover reaches £82,000. If you are VAT registered and selling physical goods to an individual in the EU you will normally need to charge VAT. If you are selling to someone outside of the EU then you generally don’t need to charge VAT.
Due to the potential complexity and variability of deciding when you should, and should not, charge VAT it is often worth speaking to an accountant. They should be able to help you establish some basic rules for your business so that you know which products and customers need to have VAT charged and which don’t.
UPDATED: In a House of Lords debate on 21st December Lord Ashton of Hyde stated that high level meetings have been taking place between online retailers and HMRC to discuss this kind of VAT fraud and that “HMRC has dedicated 25% of its customs and international trade operational resource to this problem and has set up a national task force to deal with it.”
If you need help registering for VAT give our consultants a call on 0800 0828 727.