Hammond announces new rules to combat online VAT fraud

Under a renewed government crackdown on fraud, online retailers like Amazon and eBay would be required to monitor transactions through their website in order to stop scams where foreign companies warehoused goods in the UK and then sold them, VAT free.

The move to stop the scam was the second in as many years as the more than £1bn-a-year scam had led to much criticism of HM Revenue and Customs to act.

Chancellor Philip Hammond told MPs on Friday, "We are taking further action to address online VAT fraud, which costs the taxpayer £1.2bn per year, by making all online marketplaces jointly liable for VAT – [and] ensuring that sellers operating through them pay the right amount of VAT."

The scam saw foreign companies selling goods already warehoused in the UK via online trading places skip VAT payments, despite all traders based outside of the EU being required to charge VAT if the items are located in the UK at the point of sale.

E-commerce marketplaces would be required to ensure that businesses operating through their websites displayed valid VAT numbers, as the government made them jointly-liable for any unpaid VAT where the " online marketplace knew or should have known that the business should be registered for VAT in the UK."

Richard Allen, founder of Retailers Against VAT Abuse Schemes, said, "This is a correction for the stupid bit of legislation they introduced last year which meant that Amazon and eBay did not have to act if they had not been notified of the fraud by HMRC first. If they do this properly it will kill this off."

"If I was Amazon or eBay I’d be petrified I'd be liable for the VAT if I hadn’t checked the VAT numbers of the sellers adequately, which is the whole purpose of third-party liability," added Allen.