Overseas Sellers and VAT Avoidance

overseas sellers and VAT avoidance

Category: Tax and VAT

Last week in parliament, a relatively new but important issue for online sellers was discussed - overseas sellers and VAT avoidance.

Some UK based online sellers have seen their sales drop dramatically in the last couple of years, and many of them believe this is due to overseas sellers who are able to undercut their prices by not paying VAT on the items they are selling in the UK.

VAT for overseas sellers

All overseas businesses that sell on eBay, Amazon or any other marketplace should start paying VAT on their sales in the UK as soon as they start selling to customers here (there is no threshold). Overseas sellers only avoid VAT if items are sold from outside the EU, they’re of low-value and imported in small packages already addressed to the individual customer.

MPs discuss VAT and overseas sellers 

The discussion, in Westminster Hall, was held at the request of Chris Heaton-Harris, MP for Daventry, who raised problems that his constituents were facing when selling on eBay and Amazon.

Heaton-Harris suggested that UK eBay and Amazon sellers were being undercut on price by overseas sellers (particularly Chinese businesses), because they were not paying VAT. Due to the lower prices, these overseas sellers are apparently taking the top spot in listings on Amazon and eBay, making it even harder for UK sellers to compete.

“Indications suggest that by using the low-value consignment relief and low-value bulk import procedures, Chinese sellers are bringing in vast volumes of goods, many of which are undeclared.”

He went on to talk about claims that some overseas sellers are sending their stock, packaged and barcoded, to fulfillment centres in their own country, which are then forwarded to the UK. Online marketplaces are dispatching overseas sellers’ stock from UK warehouses once the orders are placed, meaning the companies are potentially avoiding VAT but still able to offer the same quick delivery times as UK-based companies.

“It is alleged that the sellers are committing VAT fraud by failing to supply a VAT number, by presenting themselves as UK companies when they are not, or by fraudulently giving out a VAT number that does not belong to them.”

Should eBay and Amazon be enforcing VAT?

During the discussion there was disagreement over whether eBay and Amazon should be responsible for policing VAT payments by overseas sellers. Heaton-Harris mentioned legal cases which have established third party liability for VAT as an established legal principle in the European courts.

“The websites [eBay and Amazon] benefit from the transactions and participate in them, they are part of the supply chain, and they are fully aware of the VAT status of the sellers on their site because they request VAT details from all sellers.”

“They could, and should, easily identify and exclude sellers that should be registered for VAT but are not.”

Opposing this view, David Gauke MP, is Financial Secretary to the Treasury and the departmental head of HMRC: “Having looked at this, HMRC’s view is that online platforms have no liability for unpaid VAT where the operator merely provides a marketplace for goods.”

VAT evasion by overseas sellers is something that’s worrying a lot of UK online business owners, but it doesn’t look like it will be resolved anytime soon. There still seems to be little solid evidence of this tax fraud and no strategy for tackling it. It’s unclear exactly who should be policing and enforcing UK VAT on overseas sellers, the marketplaces or HMRC.

Read the full discussion about VAT evasion by overseas sellers here.

For more information on the issue read this article: UK losing millions in VAT from non-EU sellers on Amazon and eBay.

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