Faisal Rashid: Online VAT fraud is damaging UK businesses – HMRC must act
While online shopping has brought accessibility and choice to billions of consumers, it has also hurt British businesses who have been hit by VAT fraud, writes Faisal Rashid MP
The growth of online marketplaces has revolutionised the shopping experience for consumers across the globe. In 2019, it is estimated that there will be 1.92 billion global digital buyers – this number is expected to rise to 2.14 billion in 2021, making up 25% of the total global population.
But while online shopping has brought accessibility and choice to billions of consumers, it has also hurt several British businesses who have been hit by overseas competitors not charging value-added tax (VAT) when selling in the UK through online trading platforms.
As chair of the All-Party Parliamentary Group for Business Support and Engagement, I will be leading an inquiry into online VAT fraud this Autumn and providing recommendations to government bodies on how they can support best business in the digital world.
Under current VAT rules, all retailers based outside the European Union that sell goods online to customers in the UK must charge VAT if their goods are already in the UK at the point of sale. But it is not always the case that these rules are fully enforced.
This allows non-compliant overseas sellers to undercut British businesses by up to 20% – an unfair advantage that has forced many micro, small and medium-sized business to lay off staff and even close operations. And it is not only businesses that suffer: HMRC estimated that in 2016/17 the British taxpayer lost £1-1.5bn in online VAT fraud.
Online VAT fraud also poses a significant threat to the Government’s policy to promote ‘Global Britain’ as an attractive destination to do business and to trade. Failure to address online marketplaces where non-compliant companies undercut those who adhere to the rules creates the impression that the British market is an unattractive destination for compliant overseas sellers.
Between 2015 and 2018 the number of VAT registrations for overseas sellers in the UK rose from 700 to over 27,550. Although a welcome improvement, this jump illustrates the significant number of retailers who had been previously trading without a VAT registration. There are many reasons why an overseas seller may not pay the correct amount of VAT on a product they are selling: misunderstanding, ignorance, or deliberate circumvention of the rules. But none of these reasons amount to an excuse.
In November 2017, campaign group VATFraud.org handed HMRC a list of 80,241 online business sellers to HMRC, 20,754 of which were Chinese. In doing so, VATFraud.org have highlighted a significant number of sellers operating with dissolved companies or using VAT numbers not registered in their name.
Our inquiry will ask questions about these sellers, and their business practices, in order to guide HMRC in its efforts to create a level playing field for businesses operating in the UK.
To do this, we will investigate the current scale of the problem of online VAT fraud, offer recommendations about increasing the powers that HMRC currently possess to tackle online fraud, and investigate whether there are likely to be any negative implications for future VAT arrangements when the UK leaves the EU. The APPG’s work seeks to ensure that the issue of online VAT fraud remains at the top of the Government’s agenda.
Faisal Rashid is Labour MP for Warrington South and Chair of the APPG for Business Support and Engagement