Amazon is quietly rooting out many of its Chinese traders who do not hold UK VAT numbers to try to protect itself from tax evasion inquiries later this year when new HMRC powers come into force, the Guardian has learned.
The online retailer has been conducting a review of sellers’ VAT compliance in the UK. It is understood to have contacted many Chinese sellers, giving them until the end of the month to provide their VAT numbers.
Recent years have seen an explosion in small, overseas firms using Amazon and other sites to sell to online shoppers in the UK. Large numbers, including many from China, are not charging VAT. As a result, they have been able to reach the “bestseller” rankings, dominating some of the most popular listings on Amazon.
While much attention has been paid in recent years to how Amazon, Apple, Google and other tech groups have arranged their affairs internationally so as to avoid corporation tax, the loss to the UK public purse from the hordes of overseas sellers who have found ways to sell online in the UK without charging VAT may be far greater.
HMRC has described such VAT evasion as a “very big issue”, estimated to cost up to £1.5bn a year in lost tax. But officials have been frustrated by what is seen by some as the uncooperative approach taken by many big websites, including Amazon.
In January, Lin Homer, then head of HMRC, told a parliamentary committee: “We do feel, just as with beer and alcohol, that those people who manage the supply chain should ensure enough diligence is built into it. Marketplace providers have responsibilities.”
Amazon has rejected this, insisting widespread VAT fraud is not its concern. The company says it is not responsible for policing the VAT compliance of the hundreds of traders who sell goods in the UK via its site.
Behind the scenes, however, Amazon’s new UK boss, Doug Gurr, who previously led Amazon’s Chinese business, is thought to be keen to avoid a repeat of last year’s embarrassing revelations about VAT abuses among overseas sellers.
In the run-up to Christmas, a Guardian investigation identified a wave of overseas traders, many based in China, who were using Amazon UK to warehouse and sell a wide range of goods without charging VAT.
In response, George Osborne announced new powers in his March budget to help HMRC police VAT compliance in online retail – including, in some instances, holding marketplace websites such as Amazon liable for missing tax.
The chancellor said these measures would help curb the abuse and restore £875m in tax receipts over the next four years.
Gurr’s recent review of seller compliance is not thought to signal a more collaborative approach to combating VAT fraud. In a statement to the Guardian, a spokesperson reiterated: “Sellers are independent businesses responsible for complying with their own VAT obligations.
“We do offer tools and information to assist sellers with their compliance, but we don’t have the authority to review their tax affairs.” Amazon said it did nevertheless cooperate with HMRC when required by law.
The company spokesperson confirmed there were no plans to require Chinese or other overseas traders to display their UK VAT numbers on Amazon’s site.
That decision remains controversial because, under the EU’s e-commerce directive, online sellers are required to make their VAT numbers “easily, directly and permanently accessible” to customers.
Since the Guardian’s investigation into VAT fraud last year, HMRC has carried out a series of raids on independent warehouses in the UK used by overseas traders, seizing goods worth more than £500,000. Officials have also held urgent meetings with top executives at Amazon and eBay to discuss the problem.
Angry UK traders, who have been unable to compete with the new wave of VAT-evading overseas competitors, have called for ministers to clamp down on this widespread tax fraud.
Campaign groups representing UK-based sellers, including Ravas and VATfraud.org, have called for Amazon and other sites used by overseas sellers to be held immediately liable for all lost VAT. But Osborne has declined to go that far.
Instead, new rules announced in his March budget – expected to come into force with the 2016 finance bill – made it clear retail websites would only be held accountable if they failed to act after suspected abuses had been brought to their attention by HMRC.
Guardian investigations into VAT fraud last year involved a £1,818.20 sample order placed through Amazon with small overseas seller companies. The order included VAT of £0.00.
Among the 24 items ordered were high-value goods such as an Apple watch, iPad, Fitbit and Panasonic camera, as well as cheaper products including a bike light, corkscrew and mobile phone case.
The items were being sold by 23 different seller companies that appeared to have minimal or no business operations in the UK. Nine gave addresses in Hong Kong, eight in China and six in the US. All had arranged for Amazon to hold their stock in the UK, pack and send parcels, and deal with payment and returns queries.
When contacted by email and asked if they could provide a VAT receipt, many of the 23 sellers declined. “We are sorry that we are not VAT registered,” said one. Another said: “I am sorry to let you know that we couldn’t supply a VAT invoice as we haven’t charge you for that, right?”
A third reply said: “We don’t provide the VAT invoice, our product is exclusive of VAT, hope you can understand.” Another responded: “We can provide a VAT invoice but for security reasons we don’t supply the VAT number.”
