Budget 2016: Tackling VAT fraud by online sellers of goods

The law already requires overseas businesses which sell goods in the UK to account for UK VAT.

Currently, non-EC businesses bring stock into the UK and fulfil their orders with UK customers from the UK stocks. While these businesses are required to charge UK VAT on their sales, many never register and account for the applicable VAT.

A package of measures has been announced which is aimed at tackling online VAT evasion. The measures will be included in Finance Bill 2016 and will take effect from the date of Royal Assent.

The key areas that are being targeted are overseas businesses, online marketplaces and UK fulfilment houses.

Existing VAT legislation will be amended to give HMRC the discretion to direct overseas businesses that should be registered for VAT in the UK to appoint a UK-established VAT representative. The VAT representative would be required to account for the VAT on behalf of the overseas business giving HMRC greater flexibility in relation to the collection of VAT and from whom it can require security of payment for VAT they perceive may be at risk.

HMRC will also have new powers to make online marketplaces jointly and severally liable for the unpaid VAT of overseas businesses who are non-compliant with UK VAT rules.

HMRC will use risk assessment tools to first identify those overseas businesses that are high risk and/or continue to be non-compliant with UK VAT rules.

The government also intends to introduce a new online scheme for UK fulfilment houses which will set out standards of due diligence and record-keeping required by the fulfilment houses, and introduce penalties for non-compliance. The online scheme will come into effect in 2018 and a consultation paper has been issued which will run until 30 June 2016.

The government is cracking down on the avoidance of VAT on goods sold online. HMRC estimates that non-EU traders selling online to UK customers are currently evading over £1billion of VAT.