Tax & admin ยท 16 March 2016

The Budget 2016: Osborne to level the playing field for small digital retailers by closing VAT loophole

VAT loophole

Chancellor George Osborne has announced a boost to small digital sellers based in the UK by promising a crackdown on foreign companies unlawfully avoiding the payment of VAT.

?Sites like ebay and Amazon have provided an incredible platform for many new small British startups to reach large numbers of customers,? the chancellor said in his 2016 Budget speech.

?But there?s been a big rise in overseas suppliers storing goods in Britain and selling them online without paying VAT,? he added. ?That unfairly undercuts British businesses both on the internet and on the high street, and today I can announce that we are taking action to stop it.?

The announcement follows the establishment by HMRC in December 2015 of taskforce to combat VAT evasion by multinational companies, and comments by Conservative peer Lord Lucas that Amazon and eBay are ?collaborating with hundreds of overseas retailers to defraud the taxman of millions of pounds every day?.

There was also a heated parliamentary debate on the subject in January 2016 during which Conservative MP Chris Heaton-Harris shared the story of a constituent who was losing ?25,000 a month because of illegal undercutting by foreign suppliers.

?Anyone in this room could go to a website ? Amazon or eBay ? and look for a good online, believing it was from a UK-based seller; it might even have a UK limited company number; and yet it is actually none of those things and is not paying VAT to HMRC,? he told MPs.

The Federation of Small Businesses (FSB) welcomed the announcement. FSB policy director Mike Cherry said: ?Online retailers will benefit from steps to secure a level playing field for smaller online businesses on VAT.?

Under the new rules, HMRC will be given the power to make overseas sellers who are evading VAT appoint a tax representative in the UK ? and will work with marketplaces such as Amazon and eBay to identifier non-compliers.

For advice on how to make your ecommerce business succeed in this new, fairer, online retail environment, check out this guide.

Sign up to our newsletter to get the latest from Business Advice.



Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics ? as well as running a tutoring company.

Supply chain