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The taxman in the UK has 7,000 cases of sales tax evasion they have been investigating over the past two years. 4,600 online retailers have been red-flagged by the authorties to be investigated further due to to tax evasion on major markteplaces like Amazon and eBay.

Woman waving red flag
© Sergey Nivens / Shutterstock.com

Some of these sellers have gone legit, selling their goods legally and charging their end consumers the correct taxes. This has given the UK a tax revenue boost of around £205 million. Many other online stores have been shut down as a result of the investigations. The HM Revenue and Customs (HMRC) in the UK have been working together with some big players in the e-commerce industry – seven to be exact. These marketplaces are Amazon, eBay, Fruugo.com, Wolf & Badger, Etsy, ASOS and Flubit. These players signed a cooperative investigation deal to find out just which retailers have been evading their VAT tax-payments by providing sales records and other data from the HMRC. 

How Much Was Lost

It is estimated that between £1 billion and £1.5 billion in tax revenues were lost in just 1 year (2017) by companies who have not paid their sales taxes on goods, with between £600 million and £900 million of that figure coming from overseas sellers. The HMRC's definition of overseas sellers is the following: "merchants selling goods in the UK to UK consumers that don't have a business establishment in the UK". Sellers that aren't established in the EU that sell goods in the UK and then import them into the UK are also considered overseas sellers.

Mel Stride MP, the financial secretary to the treasury was quoted by techcrunch.com as saying, “Delivering a fair and level playing field for businesses is a top priority for this government. These figures show that HMRC, working closely with the major online marketplaces, is making real headway tackling this serious and damaging evasion.” 

All You Need Is VAT

Agreements signed earlier this year with marketplaces like Amazon have helped to identify online sellers who are violating the tax laws. Now, if a seller's account does not get deleted after it has been red-flagged, the marketplaces themselves become liable for any future sales taxes that the sellers incur. Past taxes don't seem to be included in this.

There has also been a boost in VAT (value-added tax) registrations by overseas companies. There were 58,000 VAT registration applications between 2017 and the end of 2018. Between 2015 and 2016, there were only 1,650.