Thousands of sellers red-flagged to online marketplaces reveals HMRC

Over 4,600 online sellers have been red-flagged to marketplaces for tax evasion during the last two years, reveals HM Revenue and Customs (HMRC). As a result, many sellers have had their online stores deleted.

The red flags, known as Joint and Several Liability (JSL) notices, were introduced in 2016 to protect British businesses from being undercut by overseas sellers committing VAT evasion.

HMRC sends notices to online marketplaces when it finds a seller using its platform not paying the correct VAT. If the seller is not removed from the site, the marketplace will be pursued themselves for any future unpaid VAT by those sellers.

Since the rules were brought in, HMRC has sent thousands of JSL notices to online marketplaces and seen over £200m of extra VAT being declared by these overseas sellers.

During the same period, the number of applications for VAT registration by overseas businesses grew to 58,000. This compares to just 1,650 applications between 2015 and 2016.

Financial Secretary to the Treasury, Mel Stride MP, said:

“Delivering a fair and level playing field for businesses is a top priority for this government.

“These figures show that HMRC, working closely with the major online marketplaces, is making real headway tackling this serious and damaging evasion.”

Emma Jones, founder of small business support network Enterprise Nation, said:

“These rules protect the hundreds of thousands of legitimate sellers who are simply trying to run a business via online marketplaces, we give it our full support.”

Online marketplaces are required by law to check if overseas sellers should be registered for VAT and, if so, that the VAT number displayed is valid. If they don't, marketplaces can be liable for any tax owed to HMRC by these sellers.

Taken together, measures announced at Budget 2016 and Autumn Budget 2017 will help protect around £1 billion of tax revenue by 2023, and further enhance HMRC’s ability to ensure everyone is paying their fair share.

Notes for Editors:

What is a ‘red flag’? A Joint and Several Liability notice. These are issued by HMRC and notices tell the online marketplace that a UK or overseas seller using its platform is not paying the correct VAT when selling in the UK. If the seller is not removed from the site, the marketplace will be pursued themselves for any future unpaid VAT by those sellers.

What is an overseas online seller? HMRC define you as an overseas seller if you sell goods stored in the UK to UK consumers and don’t have a business establishment in the UK. You’re also an overseas seller if you’re based outside the EU and sell goods to a UK consumer, then import them into the UK. Overseas sellers will typically work through marketplaces or their own websites.

What is an online marketplace? HMRC define an online marketplace as a website (or any other means by which information is made available over the internet) that anyone - including the online marketplace operator - can use to offer goods for sale.

How does HMRC identify evading sellers? HMRC collects and analyses data from a wide range of sources to understand and manage risks to the tax system, and sometimes this includes both human intelligence and the use of publicly available information.

Can’t sellers just go to a new platform? HMRC monitors new VAT registrations on a monthly basis to ensure ecommerce sellers don’t re-emerge on platforms. Joint and Several Liability notices are issued in respect of the legal entity so if the same legal entity attempts to open a new account the online marketplace where they are will still be jointly liable for tax.

Statistics

• £205m of additional VAT had been declared by overseas businesses from 2016 up to 30 November 2018
• Launched 7,000 investigations resulting in 4,600 Joint and Several Liability notices being issues to online marketplaces since rules were introduced in September 2016.
• Seven marketplaces have so far agreed to educate sellers and help HMRC tackle online VAT fraud; and
• HMRC received over 58,000 applications to register for VAT by overseas online retailers 2016-18 compared to 1,650 applications from 2015-16.