Many of us shop online using websites such as Amazon and eBay, comparing prices, purchasing with a few clicks and marvelling at the convenience. How often do we consider whether the price we pay for these goods includes the correct amount of VAT and customs duty? How many consumers even know the rules, or indeed that there are rules? HMRC estimates that the amount of VAT revenue forgone on non-EU online internet sales was £1-1.5 billion in 2015-16, but who is responsible for checking?
Recent research published by HMRC, Prevalence of individuals shopping online from overseas and handling of VAT, has come up with some findings which are not altogether surprising.
Consumers will buy through a platform they know because the strength of that brand gives them confidence to buy from small third party vendors. Many of these will be based overseas and this research looked into people’s shopping habits to see what attitudes they had towards buying from overseas suppliers based in the EU and outside the EU. Although shopping online from non-EU sellers is a minority activity, with only 16% of consumers who had shopped online in the past three months knowingly buying from sellers outside the EU, 43% had not always been aware that they were buying from overseas sellers.
Misrepresentation, such as ‘this is a gift’, and undervaluation of the goods as declared on the external packaging and customs labelling, meant that goods were misrepresented, but consumers were unclear as to why sellers would misrepresent goods in this way.
The research found that although consumers were aware of VAT and customs duties, they didn’t feel that it was their responsibility to make sure these were correctly paid, but instead saw VAT as a transaction that took place between the seller and HMRC. So, when shopping online from overseas sellers they were not checking whether they were charged VAT, so creating an opportunity for non-compliant sellers to avoid it. Unsurprisingly, VAT is not being monitored by end consumers.
The report comments:
“Although participants had low expectations of having to actively pay these taxes (they tended not to consciously consider the requirement to pay VAT or customs duties as this was often included in the total price), the earlier in the process they were made aware of VAT and customs duties, the happier they would be to pay them. Consumers would be particularly unhappy about having to pay these taxes at the point of collecting goods and would feel that they had been misled about the price.”
The continued growth in international trade between businesses and the public using platforms is likely to continue. Consumers are increasingly shopping online rather than in traditional shops, making it easy for non-EU sellers to access UK markets. As we approach Brexit, this is clearly an area to watch.
So how should the missing VAT be captured? Post your comments below.
Facebook can monitor for hatespeech; Amazon can monitor for VAT compliance.
Yes, there are only a few large platforms, so auditing them would not be difficult for HMRC.
Robert, if HMRC used (what is now) s77BVATA 1994 to make the market place pay up, the market place would be picking up the seller's liability. Do you and other readers of this blog believe this is a policy which can be enforced?
Michael, If the supplier is evading VAT your company would actually be liable for a penalty under the proposed penalties for transactions connected with VAT fraud, unless it could prove that it took reasonable steps to satisfy itself that no fraud was involved. it would also be refused a deduction for its input tax under EU law.
However the author of the original post can rest easy. The government introduced FA 2016, s 124 specifically to seek to deal with the issue identified.
Perhaps I should. Consider: if I am a corporate or partnership buyer of goods on the internet and the supplier is not charging VAT correctly, if I fail to prevent him from evading that VAT, my organisation will be guilty of the new offence of failing to prevent facilitation of tax avoidance.
Brave New World eh??