Both firms say they have no obligation to police VAT compliance by sellers as Brussels warns of huge rise in goods shipped with value under-declared
The UK is expected to lose tens of millions of pounds in VAT avoidance and evasion this Christmas as a growing number of non-EU sellers, including hundreds from China, increasingly dominate sales of popular gifts on Amazon and eBay.
“There has been a huge increase in this trade which is very difficult to control,” a senior Brussels source told the Guardian. “The system is so complicated it’s open to abuse.”
Customs officers are aware that some overseas sellers are under-declaring the value of goods shipped to the UK and other European destinations in order to qualify for VAT exemptions on low-value packages.
“You’re getting packages which the [online] customer might have paid €100 [£70] for. And they’re coming in [through customs] identified as €20, or as gifts. And that’s the abuse,” said the source, who has close knowledge of the subject. This deception benefits the seller because lower-value goods – less than €22 in most EU member states and £15 in the UK – are exempt from VAT.
Growing numbers of businesses from China are using Chinese-run warehouses in UK port cities as staging posts, allowing them to offer eBay and Amazon shoppers rapid delivery as well as competitive prices.
In many instances, sellers are not disclosing VAT numbers in their eBay and Amazon listings. When asked by a customer for a VAT receipt, several have simply replied that they do not apply the tax.
All overseas businesses selling on eBay and Amazon must apply VAT on their UK sales from the moment they start selling to customers in Britain, regardless of how low their turnover is in the UK.
VAT can be avoided only if items are sold from outside the EU, are genuinely low-value and are imported in small packages already addressed to individual consumers.
The Guardian has seen evidence of Chinese sellers on eBay giving invalid VAT numbers as well as sharing, or cloning, numbers belonging to other businesses, all of which suggests there may be serious compliance failures or fraud.
Evidence was shown to eBay, which said cases highlighted by the Guardian would be discussed with HM Revenue & Customs.
“eBay reminds all its users of their need to comply with their legal obligations and we also provide helpful guidance on VAT through our policies and help pages,” the company said. “If eBay sellers are found to be breaching UK VAT compliance rules, we will cooperate with HMRC in all cases where HMRC provides evidence of underpayment of taxes.”
Amazon said sellers on its site were “independent businesses responsible for complying with their own VAT obligations”. It added: “We don’t have the authority to review their tax affairs.”
Amazon argued that sellers using its site were not required to post their business details or VAT numbers on Amazon.co.uk. Instead they can meet EU seller disclosure rules by making the information available in an email to customers or in a paper invoice delivered with goods bought.
Brussels sources disagreed, insisting EU rules required that customers be informed of seller details before making a purchase. “In practice, for sales via online marketplaces, the information must be provided on the website,” one source said.
Both eBay and Amazon said they had no obligation to police VAT compliance by sellers using their sites, and no liability in cases in which sellers are found to have committed VAT fraud.
Richard Allen of Ravas, a tax fairness campaign group which represents UK small traders, said: “The systematic abuse of the VAT system results in damaging price distortions that drive legitimate UK businesses to the wall, and workers out of their jobs.” His members have spent months cataloguing evidence of suspected VAT abuses and have passed on their findings to senior Whitehall and Brussels officials.
Brussels sources told the Guardian that out-of-date VAT rules were too complex and ill-suited to the internet age. An overhaul including the removal of low-value exemption is planned, but it will be years before some changes come into force.
About a dozen member states are understood to have informally clubbed together to explore interim measures they can take to cope with the rapid rise of non-EU sellers, many offering VAT-free prices.
British customs officers have tried to increase scrutiny of small package imports in the last year, but they are under pressure to prioritise the monitoring of imports for terrorism threats, drugs and counterfeit goods.