UK has ‘red flagged’ 4,600 sellers for tax evasion on marketplaces like Amazon in 2 years

Sites like Amazon and eBay have made it very compelling for consumers to buy online rather than in stores, in part because prices are very competitive and in many cases cheaper than what buyers might find in traditional retailers. But in the UK, it turns out that some of those low prices are in part due to sellers dodging taxes, so now the government is cracking down.

The UK’s tax authority has ‘red-flagged’ 4,600 online merchants, from a total of 7,000 investigations, in the last two years that have been evading sales taxes on goods sold in the UK on major marketplace sites like Amazon and eBay. Many of those online stores have been shut down and deleted as a result, while those now selling to UK buyers legitimately are giving the UK’s tax coffers a £205 million ($255 million) boost.

The numbers are the latest milestones in a long-term, ongoing operation by HM Revenue and Customs (HMRC). The authority has been working in conjunction with seven different online marketplaces — Amazon, eBay, Fruugo.com, Wolf & Badger, Etsy, ASOS and Flubit — which last year signed on to cooperate in the investigation to identify merchants evading taxes by providing records of sales and other data obtained by the HMRC itself (we asked and it did not elaborate on what the latter entails).

The HMRC has estimated that between £1 billion and £1.5 billion ($1.3-1.9 billion) in collections were lost in a single year (2017) by companies failing to pay sales taxes on goods, with between £600 million and £900 million of that coming from overseas sellers.

The HMRC defines overseas sellers as a merchant that sells goods “in the UK to UK consumers and don’t have a business establishment in the UK.” Merchants based outside the EU that sell goods to UK consumers and then imports them to the UK are also overseas sellers.

The Joint and Several Liability (JSL) notices — as the red flag notices are officially called — have been around since 2016, part of a wider remit both to identify tax loss and also weed out those who might be tricking the system to the detriment of UK businesses.

“Delivering a fair and level playing field for businesses is a top priority for this government,” said Financial Secretary to the Treasury, Mel Stride MP, in a statement. “These figures show that HMRC, working closely with the major online marketplaces, is making real headway tackling this serious and damaging evasion.”

But the agreements signed earlier this year with marketplaces like Amazon to help identify violating online sellers has given the program a boost: now, if a seller’s account does not get removed after it has been red-flagged, the marketplaces themselves become liable for any future sales taxes that the sellers incur. (It does not appear that they are liable for past taxes, though.)

The HMRC said that another consequence of the operation has been a boost in VAT (value-added tax, or sales tax) registrations by overseas companies. Between 2017 and the end of 2018, there were 58,000 VAT registration applications, compared to only 1,650 between 2015 and 2016.