Hallam: government anti-VAT fraud proposals have teeth

As the government seeks to curb online VAT fraud after additional measures were announced in the Budget, Nicholas Hallam considers what impact the policy might have

It is becoming customary for our financial leaders to denounce American technology giants for perpetrating or aiding and abetting tax avoidance and evasion.

Select committee members enjoy the inquisitorial spectacle when taking Facebook and Google to task, the mega-paid executives wriggling in front of the cameras; Shadow Chancellor John McDonnell and opposition leader Jeremy Corbyn have nothing good to say about Uber; and now, in his recent budget, Chancellor Phillip Hammond has followed his predecessor George Osborne in identifying online marketplaces (by far the most significant of which are Amazon and eBay) as threats to the tax base.

Osborne announced plans to give HMRC new powers to tackle the problem of VAT fraud by overseas based online marketplace sellers (sellers fail to charge VAT on products, both reducing the Treasury’s tax take and putting UK businesses at a competitive disadvantage) in the Budget of March 2016.

It has not gone well so far. The Public Accounts Committee reported last October that ‘HMRC has been slow to get to grips with the problem and is not yet doing enough to tackle it. Previous committee reports have highlighted the problem of online VAT fraud as a growing risk… HMRC has not named and shamed non-compliant traders and so far has not prosecuted a single seller for committing online VAT fraud.’

No prosecutions at all is as extreme a policy failure as is possible, and may be the reason that Hammond was relatively understated when announcing his new measures: ‘We are also taking further action to address online VAT fraud, which costs the taxpayer £1.2bn per year, by making all online marketplaces jointly liable with their sellers for VAT, ensuring that sellers operating through them pay the right amount of VAT, just as we would expect traditional retailers to do.’

Nevertheless, despite the circumspection, his proposals have teeth. The big change from a liability perspective is that the onus shifts to the marketplaces to ensure the compliance of their users; they no longer have the right to wait for HMRC to make them aware of the issue.

A visible manifestation of this change is the new obligation of marketplaces ‘to display a seller’s valid VAT number when they are provided with one or the online marketplace offers a facility to display one’.


The UK is not alone in wanting to hold online marketplaces accountable for their non-compliant sellers. The Australian Tax Office is spearheading a similar initiative and will require online marketplaces to register and account for goods and sales tax (GST) on sales of low value goods to Australian consumers made through their platform by vendors starting from 1 July 2018.

It all sounds so straightforward. But, as the delaying of HMRC’s flagship Making Tax Digital initiative should have warned us, the relationship between the new digital economy and the old tax collection structure is anything but simple.

In the case of online marketplaces, one of the major problems is sheer scale. Amazon and eBay have created a possibility for small traders from every part of the world to sell their goods in the global consumer market. It is an extraordinary achievement, facilitated by the most razor sharp of cutting edge technologies.

But, in our bit of the world, EU tax authorities are simply not organised to cope with the huge demand for registrations; even those companies trying to be VAT compliant face logjam and confusion. This is not the fault of Amazon or its suppliers; it is merely the inevitable result of new technology bumping into old bureaucracy.

We have not yet started to come to grips with the economic consequences of digitalisation, but one visible trend is the ‘winner takes all’ phenomenon. Paradoxically, because online platforms are available to all users, everywhere, they naturally tend towards being monopolies (Facebook is ubiquitous or it is nothing) with their own commercial ecosystems, their users operating at one remove from tax authorities.

This makes them hard to police, even as they contain a potentially dangerously large slice of the tax revenue pie. Of course, the risk of making technology platforms liable for unpaid taxes when government infrastructure is inadequate for processing the huge volume of applications for registration, is that the platforms either put the brake on development (hitting global growth) or find themselves in serious financial jeopardy. 

There is more of this to come. 3D printing, for example, may well transform the nature of complex supply chains in the next decade. What need to move stuff about in a world where anything can be printed, anywhere? The potential simplifications are celebrated by some; but, for treasuries around the world, dependent on Hammond’s ‘traditional’ retailers and manufacturers for regular revenue, the metamorphosis of goods and services into strange new forms, with no self-evident place of supply or taxation, could become a nightmare.

About the author         

Nicholas Hallam is CEO of VAT consultancy Accordance

Nicholas Hallam |CEO, Accordance

Hallam is CEO of specialist VAT consultancy Accordance and one of the founders. The company was created to meet the needs of bu...

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