Out-Law / Your Daily Need-To-Know

HMRC stepping up e-commerce VAT enforcement after collecting additional £3.4bn last year

19 Jan 2016, 10:54 am

HM Revenue and Customs (HMRC) will be keeping a close watch on the tax affairs of major online retailers this year as part of its efforts to close the £13 billion 'VAT gap', an expert has said.

Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, said that underpaid VAT was one of the biggest components of the UK's overall tax gap, which refers to the difference between the amount of tax that could theoretically be collected by HMRC and that which is actually collected. At the same time, the department was coming under increasing pressure to prevent companies from avoiding VAT by selling primarily online, he said.

"HMRC appears to consider that the major e-commerce marketplaces may not always police the companies they host on their websites to ensure that they comply with local tax rules," he said. "High street retailers and supermarkets argue that many companies based abroad can undercut their UK competitors by not paying VAT as a result."

"As e-commerce takes more market share from the high street, HMRC is paying the sector close attention. It is concerned that some of the big e-commerce platforms have turned a blind eye to users of their platform avoiding VAT payments," he said.

According to figures obtained by Pinsent Masons, HMRC managed to collect an additional £3.38bn in disputed VAT payments from the 2,100 companies whose tax affairs are overseen by its Large Business Directorate in the year to 31 March 2015. The Large Business Directorate was established in April 2014, and covers UK businesses with a turnover of more than £200 million and/or a relevant balance sheet total of more than £2bn for the preceding financial year.

The Large Business Directorate had 1,960 enquiries into VAT compliance open in total during tax year 2014/15, according to the figures.

"Underpaid VAT is one of the biggest components of the tax gap and HMRC feels there are billions more that it could bring in," said Mellor-Clark. "So, despite the complexity of VAT, we expect HMRC to continue to pour resource into this area."

However, the department often found it difficult to pursue companies based overseas, he said.

"Attempting to prosecute a foreign company can create its own set of legal challenges – if the amount is small then that becomes a disincentive," he said.