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Online Marketplaces: VAT Evasion

Volume 793: debated on Monday 22 October 2018


Asked by

To ask Her Majesty’s Government what steps they are taking to ensure that operators of online marketplaces take all reasonable steps to mitigate VAT evasion.

My Lords, the UK is the first country in the world to make online marketplaces jointly and severally liable for VAT fraud committed on their platforms. Since 2016, HMRC has received around 43,500 VAT registration applications from non-EU based online sellers, which compares with 1,650 in 2015.

This issue is of course important to UK high street retailers which are facing intense competition from Amazon. Does my noble friend the Minister share my concern that HMRC estimates that the loss of VAT through evasion by foreign online supply companies is between £600 million and £900 million? However, despite having the powers to do so, HMRC has not frozen any funds, it has not blocked any listings and it has not seized one item of stock from warehouses where goods from overseas suppliers are stored awaiting dispatch the next day.

My Lords, I congratulate my noble friend on his commitment and consistency in raising these very important issues which the Government recognise. That is why, for exactly the reasons he has outlined, we were the first country in the world to introduce joint and several liability for market sellers. We have issued more than 3,000 joint and several liability orders since they were introduced and the amount of tax revenue, which is the crucial point raised by my noble friend, is expected to increase to £1 billion over the review period leading up to 2023. However, more needs to be done.

My Lords, are Ministers seriously considering any Treasury recommendations to increase the VAT threshold and thereby bring a lot more traders under the rules? Would that not increase the tax take substantially?

There are other ways of approaching the issue, one of which is to crack down on the loopholes. We have introduced successive initiatives and we have spent some £2 billion for HMRC to cut down on evasion. Next April, we will bring in an important measure to address the point made by my noble friend Lord Leigh. It will require that due diligence is carried out on online marketplaces to ensure that people are actually paying the correct amount of tax. Our emphasis and focus is on closing the gap and ensuring that more people pay the tax that is due rather than looking at the rates.

My Lords, despite its expanded powers, HMRC is shockingly poor at collecting VAT from overseas sellers. The number has been 4% of the amount that it is owed, and if I understand the Minister’s numbers, it will not even attempt to get the figure up to 10%. As we go through the Brexit process we run the risk that another 27 countries are going to fall into the same overseas sellers category without the single market and the ECJ to ensure that we can collect VAT from entities that are based elsewhere but selling in the UK. What does he anticipate will be the consequence of that?

We have to recognise that the UK has the largest online marketplace in the EU. We also need to recognise that beyond the EU, this is a global issue. Most of the goods coming in are actually from outside the EU, and that is why the G20 and OECD base erosion and profit shifting initiatives are so important, as well as moving our tax system on to a digital basis so that we can ensure that digital businesses pay the correct amount of tax due.

Does my noble friend not understand that small retailers are now being required to produce their returns online, although that has been temporarily suspended, while in the meantime their main competition is committing evasion on a substantial scale—never mind the fact that business rates are hugely generous for online businesses? Are Her Majesty’s Government saying that they are not concerned about the loss of the high street? If they are, is it not time that they showed a little more understanding of what faces our shopkeepers up and down the country?

We sympathise with those people, which is why we have listened to the calls that have been made. We have introduced pioneering joint and several liability for marketplaces and are introducing a due diligence system. While we are working through the G20 and the OECD, we are looking at initiatives that could be considered to solve the problem, such as split payments to ensure that VAT is automatically paid when someone domiciled in the UK makes a transaction.

My Lords, the PAC noted that HMRC does not know how many fulfilment houses, or packaging establishments, there are in the UK and is therefore unable to systematically target VAT fraud. Is that right? If so, what will the Government do about it?

My Lords, does my noble friend think that Sir Nicholas Clegg may have some spare time to devote to this?

My Lords, is this not a problem of HMRC resources? Is it not very difficult now to reverse the cuts that have been made in HMRC over the years? This is a clear example of loss of revenue to the Exchequer and the damage it does to the high street.

I do not accept the premise that we are reducing the amount of money going into HMRC. Since 2010, as I said earlier, we have spent some £2 billion on closing that loophole. The increased yields which that has brought into the Exchequer are evidence that it is working.