MPs’ call for HMRC to step up VAT compliance of overseas traders 'too early', says expert

However, tax expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law.com, said the committee’s report came too soon after HMRC was given new powers to tackle the issue of insufficient VAT being paid by traders outside the UK.

“Tackling online VAT fraud is very resource intensive for HMRC because so many small traders are involved and very many of them are based offshore,” Robins said.

“With a raft of new measures having been only recently introduced to tackle online VAT fraud, it is too early to be assessing HMRC’s progress in this area,” she said.

The Public Accounts Committee was following up on a previous report issued in October last year which said the UK was losing between £1 billion and £1.5bn a year from online VAT fraud. Although over 27,000 new traders had become VAT registered in the last two years, the MPs said in the new report that they were concerned too many online traders were not paying enough tax.

The measures introduced since October include extended powers which enable HMRC to hold online marketplaces jointly and severally liable for the unpaid VAT of a business, arising from sales via that online marketplace.

Online marketplaces are now required to display a VAT number for their traders, and to ensure that VAT numbers displayed on their website are valid. A fulfilment house registration scheme also came into operation in April 2018 aimed at making it more difficult for non-compliant suppliers to trade in the UK and to help HMRC identify and tackle them more easily.

The MPs called on HMRC to update the committee by March 2019 on its progress in securing the additional £1bn in VAT revenue it expected to raise through to 2023 due to these measures. It said HMRC should supply information on its progress and outcomes on investigating non-compliant overseas traders, auditing the compliance of newly registered traders and their repayment of previously unpaid VAT.

The committee also said there were limitations in HMRC’s approach which were hindering its ability to tackle non-compliant businesses. The limitations included the high bar required to gain a warrant to seize stock held in the UK belonging to traders suspected of non-compliance.

It noted that HMRC was currently consulting on ‘split payment’, a method of extracting VAT in real time from online payments, but that implementation of these proposals was still “some way off”.

Robins said the split payment system could be helpful, but would also make VAT collection more complex.

“The current proposals for a new ‘split payment’ system for collecting VAT on online sales may help to reduce fraud but they will add significant complexity to the system and are likely to increase costs for merchant acquirers and card issuers,” Robins said.