VAT and online marketplaces – will the recent changes combat fraud?

In an attempt to curb VAT fraud via third parties selling on online marketplaces, new rules shift compliance responsibility to platforms, but will this tackle the growing problem? Rachel Clark, barrister at Bright Line Law, examines the legal framework

In 2019/20 the estimated UK VAT gap hit £11.7bn. The VAT regime, with its credit and refund mechanism, offers opportunities for fraudsters: from missing trader intra-community (MTIC) fraud to false accounting, evasion schemes continue to mutate. VAT fraud is not alone, according to a report by RUSI, general fraud in the UK has reached 'epidemic levels'.

One area of concern has been the rise of VAT fraud in online marketplaces. In 2015-16 VAT evasion by overseas sellers on online platforms was estimated by HMRC to have cost £1bn-£1.5bn in lost tax revenue. E-commerce fraud is morphing beyond the barefaced failure to provide a valid VAT number, undervaluing consignments, or forging invoices, to more sophisticated measures, including cloning other companies’ VAT details.

In 2018, seven leading online marketplaces signed an agreement to co-operate with HMRC and promote VAT compliance. Amazon, eBay,, Wolf & Badger, Etsy, ASOS and Flubit agreed to provide HMRC with data about businesses operating on their marketplaces. As a result, HMRC red-flagged 4,600 sellers in 2019, highlighting the scale of the problem.

That was just the beginning. Now, the government has taken steps to further leverage OMPs to combat VAT fraud.

The new measures

From 31 December 2020, VAT on overseas consignments valued at £135 or less became due at the point of sale, and not on import. Further, where an online marketplace facilitates the supply of (a) such an overseas consignment; or (b) goods of any value located in the UK but sold by an overseas seller, the seller is considered to have made a supply to the online marketplace (section 5A, VATA 1994).

The online marketplace then becomes the ‘deemed supplier’ and is liable to account for VAT at the point of sale. The definition of an online marketplace for these purposes is set out in s95A, VATA 1994.

There are exceptions, including certain goods (eg, tobacco and alcohol), transactions where the customer is a UK VAT-registered business and valid VAT registration details are provided (in such circumstances, VAT will be accounted for by means of the reverse charge), and consignments from Jersey and Guernsey covered by the Import VAT Accounting Scheme.

The government’s stated motive in introducing these measures was to 'tackle distortion, closing the current gap between the price of goods from overseas sellers when compared to goods on the high street'. It was designed to create a 'level playing field' between overseas merchants and UK sellers in the post-Brexit era. The EU is due to implement similar changes from July 2021.

However, the provisions go further – they place the onus on online marketplaces to determine who is liable for VAT and, in certain circumstances, to account for it. Under the new legislation, the online marketplace will not become liable for any VAT due in excess of the amount paid by the customer. However, this protection only applies to the extent the online marketplace took ‘reasonable steps’ to ascertain the place of establishment of the seller, the location of the goods at the time of the supply, and that the amount charged was correct (s77F VATA 1994).

It is therefore vital for online marketplaces to ensure they have compliance procedures in place, and to seek legal advice if they do not.

Will they combat VAT fraud?

The measures come at a time when HMRC itself appears to have taken a step back from investigating online sellers. Between April and December 2020, it sent just 80 individual data requests to platforms about sellers using their services, down from 2,684 in 2019/20. The tax authority has blamed this on resource reallocation to manage coronavirus support measures, but there is no clear end in sight. It is not clear how HMRC proposes to police the new measures, when it is already so stretched.

Shifting VAT compliance to online marketplaces may also have unintended consequences. Of course, with online marketplaces acting as the ‘deemed supplier’, HMRC is required to interact with fewer entities. This reduces the chance of it being overwhelmed. However, overseas sellers have not disappeared; they have simply been removed from HMRC's direct lens. This could, ironically, lead to an increase in fraud.

Online marketplaces cannot be expected to identify all tax evasion, however reasonable their processes. They (especially the smaller online marketplaces) do not have the expertise of HMRC, or access to the wealth of data required for cross-checks, available via the tax authority's Connect system.

Further, if VAT fraud continues to increase, the search for someone to blame will intensify. As more responsibility is forced upon online marketplaces, they may become less willing to share data. Perversely, by pushing too hard, HMRC may find that the door it had managed to nudge open starts to close.


About the author

Rachel Clark is a barrister at Bright Line Law, specialising in tax investigations and financial crime 


Note: There are specific provisions relating to Northern Ireland, which fall outside the scope of this article.


Rachel Clark |Barrister, Bright Line Law

Rachel Clark is a barrister at Bright Line Law, specialising in tax investigations and fi...

View profile and articles

Average: 5 (3 votes)

Rate this article

Related Articles