In its latest report on tackling online VAT fraud, the public accounts committee (PAC) suggests HMRC should seek enhancement of its powers to seize goods in fulfilment houses. The committee also believes the new online marketplaces agreement should be made compulsory and looks forward to progress on plans to introduce a ‘split payment’ method.
The PAC’s latest report, ‘Progress in tackling online VAT fraud’, is based on evidence taken from HMRC in April 2018, as a follow-up to its previous report, ‘Tackling online VAT fraud and error’, published in October 2017.
HMRC’s estimate of the amount of VAT lost through online fraud and error in 2016/17 remains broadly flat, at between £1bn and £1.5bn.
The PAC welcomed the introduction of some of the recommendations in its previous report, including the new collaboration agreement with online marketplaces.
HMRC expects its range of new measures, including joint and several liability for online marketplaces and the fulfilment house due diligence scheme, to raise just under £1bn in extra VAT by 2023. It confirmed that these measures have led to 27,550 applications from overseas online retail businesses to register for VAT between March 2016 and January 2018, yielding £100m in additional VAT. Over 2,000 investigations into overseas businesses selling via online marketplaces were opened between September 2016 and January 2018, issuing around 1,300 joint and several liability notices, which produced some £120m in compliance yield.
The report makes recommendations to address the factors that limit the effectiveness of HMRC’s current approach. These include:
Making the online marketplaces agreement compulsory: The committee notes that online marketplaces ‘face no sanction’ for not signing the collaboration agreement, and doubts these agreements will be effective unless compulsory.
Using powers of seizure against fulfilment businesses where fraud is suspected: HMRC does not regard this as cost-effective under current law because of the requirement to obtain a warrant to enter the premises of third parties, such as fulfilment houses. HMRC undertook to update the committee on the outcome of discussions currently underway with the Ministry of Justice about whether greater powers are needed and what new legislation would be required.
Following closely HMRC’s plans for introducing ‘split payment’: This involves suppliers receiving the net amount, while VAT is remitted directly to HMRC in real time.
HMRC’s consultation on potential split payment mechanisms has just closed. HMRC told the committee that some interested parties believe it is already pushing the idea of split payment too far. It is likely to undertake further consultation and regards the introduction of new rules on split payment as ‘some way off’.
The report asks HMRC to update the committee on progress by March 2019. See https://bit.ly/2MKsdHW.
PAC chair, Meg Hillier, commented: ‘Online VAT fraud continues to deprive the public purse of huge sums of money.’ While the committee recognises the steps HMRC has taken in response to its concerns, ‘there is a long way to go,’ Hillier said.
Catherine Robins, partner at Pinsent Masons, said proposals for a 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 also believes the PAC is expecting results too soon. ‘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. ‘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.’
In its latest report on tackling online VAT fraud, the public accounts committee (PAC) suggests HMRC should seek enhancement of its powers to seize goods in fulfilment houses. The committee also believes the new online marketplaces agreement should be made compulsory and looks forward to progress on plans to introduce a ‘split payment’ method.
The PAC’s latest report, ‘Progress in tackling online VAT fraud’, is based on evidence taken from HMRC in April 2018, as a follow-up to its previous report, ‘Tackling online VAT fraud and error’, published in October 2017.
HMRC’s estimate of the amount of VAT lost through online fraud and error in 2016/17 remains broadly flat, at between £1bn and £1.5bn.
The PAC welcomed the introduction of some of the recommendations in its previous report, including the new collaboration agreement with online marketplaces.
HMRC expects its range of new measures, including joint and several liability for online marketplaces and the fulfilment house due diligence scheme, to raise just under £1bn in extra VAT by 2023. It confirmed that these measures have led to 27,550 applications from overseas online retail businesses to register for VAT between March 2016 and January 2018, yielding £100m in additional VAT. Over 2,000 investigations into overseas businesses selling via online marketplaces were opened between September 2016 and January 2018, issuing around 1,300 joint and several liability notices, which produced some £120m in compliance yield.
The report makes recommendations to address the factors that limit the effectiveness of HMRC’s current approach. These include:
Making the online marketplaces agreement compulsory: The committee notes that online marketplaces ‘face no sanction’ for not signing the collaboration agreement, and doubts these agreements will be effective unless compulsory.
Using powers of seizure against fulfilment businesses where fraud is suspected: HMRC does not regard this as cost-effective under current law because of the requirement to obtain a warrant to enter the premises of third parties, such as fulfilment houses. HMRC undertook to update the committee on the outcome of discussions currently underway with the Ministry of Justice about whether greater powers are needed and what new legislation would be required.
Following closely HMRC’s plans for introducing ‘split payment’: This involves suppliers receiving the net amount, while VAT is remitted directly to HMRC in real time.
HMRC’s consultation on potential split payment mechanisms has just closed. HMRC told the committee that some interested parties believe it is already pushing the idea of split payment too far. It is likely to undertake further consultation and regards the introduction of new rules on split payment as ‘some way off’.
The report asks HMRC to update the committee on progress by March 2019. See https://bit.ly/2MKsdHW.
PAC chair, Meg Hillier, commented: ‘Online VAT fraud continues to deprive the public purse of huge sums of money.’ While the committee recognises the steps HMRC has taken in response to its concerns, ‘there is a long way to go,’ Hillier said.
Catherine Robins, partner at Pinsent Masons, said proposals for a 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 also believes the PAC is expecting results too soon. ‘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. ‘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.’
