UK set to introduce the Amazon tax

Amazon pickup and returns centre

Leaked documents reported in the Financial Times indicate that the UK is to make online marketplaces such as Amazon and eBay liable to collect VAT on behalf of their sellers.

The documents, described as an informal consultation, make clear that the UK is set on the policy, with experts being consulted on design details.

Currently, businesses selling their goods via online marketplaces are liable for their own VAT. This has been a boon to fraudulent traders selling into the UK from overseas. In 2017, a BBC Panorama documentary demonstrated how easy it was for sellers to smuggle goods into the country from China VAT free and sell them to UK customers via online platforms.1

Although there has been a lot of focus on fraudsters using Amazon and eBay, the two largest marketplaces, there are a number of other marketplaces allowing non-uk businesses to sell into the country via their platforms.

The Treasury estimates that VAT fraud using online marketplaces costs the UK between £1bn-£1.5bn a year, which is in the region of the amount TaxWatch estimates is tax lost to corporate tax avoidance by five of the largest tech giants.

In addition, fraudsters selling into the UK undercut legitimate retailers, leading to job losses and store closures on the high street.

In 2016, the UK government introduced legislation to curb VAT fraud on online market places. This made marketplaces liable for the unpaid VAT bills of businesses using their platform if they refused to remove them after being identified by HMRC as non-compliant. Between 2018 and 2019 HMRC identified 4,650 sellers as being non-compliant.

However, following FOI’s from TaxWatch we found that this approach was only recouping 20% of tax lost.

The government is planning to bring in the new policy in 2020 to coincide with changes to VAT that will be required when the Brexit transition period ends. However, the UK could introduce this change earlier. Germany made online market places responsible for the VAT liabilities of its sellers in 2019.2

The change in the UK government’s approach comes after years of campaigning by organisations such as Retailers Against VAT Abuse Schemes and the Campaign Against VAT Fraud on eBay and Amazon in the UK.

Photo by Bryan Angelo on Unsplash

1BBC Panorama: The fraud costing the UK £1bn a year, BBC News, 27 November 2017, https://www.bbc.co.uk/news/business-42143849

2News: German Amazon Marketplace Sellers obligated to Register for VAT, SimplyVAT, 20 December 2018, https://simplyvat.com/news-german-amazon-marketplace-sellers-obligated-to-register-for-vat/