The tax man’s investigation of online selling is HMRC’s latest battle in the war on VAT fraud.


Amazon and eBay are to be held liable for the VAT fraud committed by the overseas sellers that use the websites. Those based overseas who sell on the sites but pay no VAT are costing HM Revenue and Customs (HMRC) millions of pounds in unpaid taxes – and the government is on to them.
The chancellor has given HMRC the power to warn such sellers that what they are doing is in breach of UK law and order them to pay the VAT that is owed. If the VAT HMRC believes should be paid is not paid within 30 days, eBay and Amazon can be held liable for the missing tax.
The Treasury estimates this measure will bring in £875m in lost VAT receipts over the next four years. It is a significant amount although estimates say that the total cost each year to the public purse of VAT abuse is somewhere between £1 billion and £1.5 billion.
Attention
This government reaction comes at a time when increasing numbers of non-European Union sellers – most notably from China – are taking to Amazon and eBay to sell goods while making no attempt to pay VAT. But the issue of VAT fraud in general is one that is attracting ever more government attention.
VAT fraud prosecutions are usually brought under Section 72 of the Value Added Tax Act 1974. But cases can also be brought under the Fraud Act 2006; which was introduced to make it easier to mount a successful fraud prosecution.
While VAT fraud cases may differ in complexity they usually involve the prosecution attempting to prove that a person with a business either did not pay enough VAT or reclaimed more than they were entitled to. The arguments can be complex, with defence and prosecution disputing issues such as the falsification of invoices and whether particular people were involved in the VAT fraud – and, if so, whether they were knowingly or unknowingly involved
Evidence
Rahman Ravelli has always believed that the best way to defend a person against VAT fraud allegations is to collate all the available evidence as early as possible; including that which the prosecution does not intend to use. Such a tactic can involve shrewd use of disclosure. What is then needed is an astute analysis of all evidence in order to mount a strong defence that seeks to demolish the prosecution’s claims.
It is a situation that requires lawyers with experience of both straightforward tax evasion and knowledge of complex, sometimes multinational, tax arrangements. Having represented clients facing VAT fraud allegations in a wide range of business sectors, we believe in using analytical and investigative skills, forensic accountants and professional experts to build a case that challenges prosecution assumptions and provides strong reasons to explain a client’s actions.
In order to show that prosecution claims are false, a defence team should always look to prove that their client was either not involved in the VAT fraud or, if they were, that they were not “knowingly concerned’’ with what fraud was being perpetrated. This has to be established as early as possible.
Complex
VAT fraud has become an area that has seen increasingly complex criminal operations being carried out in the last two decades. Missing Trader Intra Community (MTIC) VAT frauds – also known as carousel frauds – have proved to be major criminal operations involving complex trading networks designed to import goods VAT free, sell them on at a price that includes VAT but then never pay that VAT to HM Revenue and Customs.
Large chains of traders, various companies and even importation and re-export of the same goods were all used in MTIC frauds.
As with the Amazon and eBay VAT evasion now, the government recognised the problem of carousel fraud and took action. In 2007, it introduced the 'reverse charge' on certain high-value goods that were being used on MTIC fraud, which required buyers to pay VAT direct to HMRC.
This had a deterrent effect and the instances of MTIC fraud dropped. But this only meant that those looking to commit VAT fraud changed their methods; with carbon credits becoming a preferred option for the criminal. Once again, the government moved to close VAT loopholes. But not before huge VAT frauds had been committed involving carbon credits – and very often involving innocent people who were duped into buying carbon credits by those committing the fraud.
Millions
Rahman Ravelli has been involved in some of the largest carbon credit fraud cases in the UK, including Operation Tulip, where the allegations have involved millions of pounds. We were also involved in MTIC cases such as Operation Forbear, which involved an alleged £50 MTIC fraud involving textiles and mobile phone deals. We are fully aware of the extent to which innocent traders can come under suspicion – and of the best ways to establish their innocence.
There can be little doubt that the government sees the overseas online sellers as a VAT source that needs to be tapped as soon as possible. But it is looking at all aspects of UK trade, regardless of where it originates, as a possible source of taxes. HMRC is now looking at VAT with regard to eBay and Amazon but it would be foolish for anyone else in business to feel that this means that their VAT affairs will not come under scrutiny.