Clampdown on overseas e-retailers with HMRC under pressure to close £13 billion VAT gap

HMRC’s specialist unit targeting the UK’s largest businesses collected an additional £3.38 billion in revenue through investigations into underpaid VAT in the last year*, according to Pinsent Masons, the international law firm.

Pinsent Masons adds that the estimated tax gap for VAT has been recorded at £13 billion for 2014-15. The VAT gap measures the difference between the amount of tax which could, in theory, be collected by HMRC, and what is actually collected – much of the gap will relate to avoidance and evasion.

Pinsent Masons says that this sum reflects a shift by HMRC towards targeting underpayment of VAT by the largest businesses, with the most complex tax affairs.

Recent targets include major overseas e-commerce companies, which HMRC believes do not collect all of the necessary VAT payments from companies using their online marketplace platforms.

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Darren Mellor-Clark, Partner at Pinsent Masons, comments:

Underpaid VAT is one of the biggest components of the tax gap and HMRC feels there are billions more that it could bring in. So, despite the complexity of VAT, we expect HMRC to continue to pour resource into this area.

“As e-commerce takes more market share from the high street, HMRC is paying the sector close attention. HMRC is concerned that some of the big e-commerce platforms have turned a blind eye to users of their platform avoiding VAT payments.

“HMRC appears to consider that the major e-commerce marketplaces may not always police the companies they host on their websites, to ensure that they comply with local tax rules.

“High street retailers and supermarkets argue that many companies based abroad can undercut their UK competitors by not paying VAT as a result.

“HMRC is under pressure to stop companies avoiding VAT by selling primarily online, but it can be difficult for HMRC to pursue companies overseas. Attempting to prosecute a foreign company can create its own set of legal challenges – if the amount is small then that becomes a disincentive.

The additional VAT was collected from enquiries undertaken by HMRC’s Large Business Directorate, which was established in April 2014 to ensure the tax compliance of the UK’s 2,100 largest and most complex businesses. In 2014-15, the Directorate had 1,960 enquiries into VAT open in total.

*2014-15, year end March 31

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