Progress in tackling online VAT fraud Contents

Conclusions and recommendations

1.HMRC has taken some positive steps to tackle online VAT fraud. But there remains much to do to embed new compliance measures and to ensure online marketplaces and sellers meet their VAT obligations fully. Since we last reported on online VAT fraud, in October 2017, several new measures have become available to HMRC to tackle online VAT fraud. HMRC now has extended powers to hold online marketplaces jointly and severally liable for the unpaid VAT of a business, arising from sales via that online marketplace. Online marketplaces are now required to display a VAT number for their traders, when they are provided with one. Online marketplaces are also required to ensure that VAT numbers displayed on their website are valid. HMRC has launched a Memorandum of Understanding (MoU) to encourage greater collaboration and sharing of information between online marketplaces and the Department. A fulfilment house registration scheme came into operation in April 2018 aimed at making it more difficult for non-compliant suppliers to trade in the UK and to help HMRC identify and tackle them more easily. There have been 27,500 applications to register for VAT from overseas online retail businesses since the new measures were announced. But this is a large pool and will need to be thoroughly vetted. HMRC has increased staff numbers working on this area but this is a big task. With the help of these additional measures HMRC expects to raise an extra £1 billion VAT revenue by 2023. We expect HMRC to implement the new measures robustly in its efforts to secure this revenue.

Recommendation: HMRC should update us by March 2019 on progress in securing the additional forecast £1 billion VAT revenue through to 2023, including progress and outcomes on investigating non-compliant overseas traders, auditing the compliance of newly registered traders and their repayment of previously unpaid VAT.

2.Despite the new measures to tackle online VAT fraud, there are still limitations in HMRC’s approach which hinder its ability to tackle non-compliant businesses. Where overseas online traders suspected of committing VAT fraud hold stock in UK fulfilment houses HMRC could seize their stock to help ensure compliance. However, HMRC does not use this method in practice as it requires a warrant, and HMRC must meet a high threshold of evidence to get one. HMRC considers this approach is generally not cost-effective. HMRC is considering, with the Ministry of Justice, whether its seizure powers meet its needs or should be strengthened, or whether it could agree a streamlined set of powers. The Memorandum of Understanding to encourage greater cooperation between online marketplaces and HMRC is voluntary. Online marketplaces face no sanction for not signing and we doubt it will be effective unless it is compulsory. HMRC is consulting on a new way to collect VAT, known as split payment. This would allow the VAT to be extracted from online payments in real time. The Department believes this could significantly reduce the challenge of enforcing online seller compliance. However, even if this were an appropriate method, introduction of split payment is some way off.

Recommendation: HMRC should assess the key constraints and challenges it faces in tackling online VAT fraud and identify any further measures necessary to overcome them, including any further legislative powers. HMRC should update us by March 2019.

Published: 29 June 2018