Progress in tackling online VAT fraud Contents

2Limitations in HMRC’s approach

9.Despite the new measures to tackle online VAT fraud, there are still limitations in HM Revenue & Customs’ (HMRC’s) approach which hinder its ability to tackle non-compliant businesses. The Memorandum of Understanding to promote collaboration between HMRC and online marketplaces could be a valuable measure but HMRC told us that at the moment it is only voluntary and, at the time we took evidence, only two online marketplaces had signed up.20 HMRC said that it fully expected online marketplaces to sign the Memorandum of Understanding and share data. HMRC noted that the main sanction would be public visibility of the fact that online marketplaces have either not signed the agreement, or if they had but are not complying with it, that they would be removed from the agreement, so that they could not claim to be a signatory when they are not living up to it.21

10.Where overseas online traders suspected of committing VAT fraud hold stock in UK fulfilment houses HMRC can seize their stock to help ensure compliance. However, HMRC told us that such activity is difficult as it needs a warrant and a high threshold of evidence to get one. HMRC has two seizure powers. One is under Customs legislation, for example, in some fulfilment houses where, if HMRC finds that goods have been mis-declared, it has the right to seize them. HMRC told us it also has a right of access to goods, under bailiff legislation, if there is an unpaid debt, which it thought is probably more relevant. For example, if HMRC makes VAT assessments, and those assessments are unpaid, HMRC can see if there are goods that it can take to help pay the debt.22

11.HMRC explained that its powers are greatest where the goods are held in the debtor’s own premises. Where goods are held in a fulfilment house belonging to a third party, under current UK law, HMRC told us it has to seek a warrant to gain access to the premises, so it becomes a less viable way of doing things. HMRC told us it has never issued a notice to Amazon to seize the third-party goods belonging to a seller in respect of whom HMRC has issued a joint and several liability notice. HMRC explained that such an approach is not part of its compliance method for tackling this risk because, as its powers currently stood, it is not a practical way of making a meaningful difference. HMRC told us it is engaging with the Ministry of Justice about whether its powers are sufficient or whether it needs greater powers, or a streamlined set of powers. HMRC undertook to send us an assessment of what new powers it needed and whether that would require primary or secondary legislation.23

12.HMRC is consulting on a new way to collect VAT, known as split payment. The consultation ends on 29 June 2018.24 Split payment would allow the VAT to be extracted from online payments in real time. The Department believes split payment could significantly reduce the challenge of enforcing online seller compliance.25 We wondered whether the benefits of split payment would outweigh the costs. HMRC noted that it was “pushing the envelope globally” with this idea and that some parties thought HMRC was pushing it too far. HMRC believes the right way of testing the split payment mechanism is to consult and see whether it is operable. With the consultation ending in June, we expect HMRC to be able to update us at future evidence sessions.26

20 Qq 79–82

21 Q 87

22 Q 97

23 Qq 97, 98, 100–103

24 Qq 95, 96

26 Qq 95, 96

Published: 29 June 2018