Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) will become jointly liable with sellers committing online VAT fraud in new reforms announced by the government.
Chancellor Philip Hammond told the parliament that the government is taking further action to prevent VAT fraud, which costs the taxpayer £1.2bn per year, by making all online marketplaces responsible for policing their own websites.
The fraud involves companies based outside the European Union storing products in UK warehouses and selling the items VAT-free via internet market places.
Non-EU firms selling products online to UK customers are required to charge VAT if their goods are in the UK at the point of sale.
Crackdown on online marketplaces avoiding VAT
Online marketplaces, including Amazon and eBay, will need to ensure that businesses operating on their site have displayed valid VAT numbers.
Hammond said online marketplaces will be “jointly liable” with sellers for any unpaid VAT where the “online marketplace knew or should have known that the business should be registered for VAT in the UK”.
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Last year the government had attempted to shut-down the fraud by introducing legislation that only imposed joint liability if the marketplace had not removed a seller 30 days after being informed by HMRC of a breach.
“This is a correction for the stupid bit of legislation they introduced last year which meant that Amazon and eBay did not have to act if they had not been notified of the fraud by HMRC first. If they do this properly it will kill this off,” said Richard Allen, founder of Retailers Against VAT Abuse Schemes.
“If I was Amazon or eBay I’d be petrified I’d be liable for the VAT if I hadn’t checked the VAT numbers of the sellers adequately, which is the whole purpose of third-party liability.”
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Amazon or eBay have not commented on the chancellor’s new reforms. However, the companies both told the parliament’s public accounts committee (PAC) that they took VAT fraud seriously.
The PAC accused the HRMC of being too slow to “get to grips with the problem” and said it was “not doing enough to tackle it” in a report into online VAT fraud published last month.