There has been a considerable shift towards online businesses and those that operate internationally, particularly following closure of offices and premises as a result of COVID-19 but with the change in business models, consideration needs to be given to legal requirements and tax liability a business may have. If you are an online seller, there are certain checks you must carry out to satisfy HMRC’s requirements and there can be consequences for failing to do so.
Online and distance selling goods in the UK
HMRC are monitoring online sellers and can approach businesses directly and via the marketplaces such as Amazon and eBay if they consider businesses to be non-VAT compliant. HMRC can commence investigations and request evidence and proof of compliance with their VAT requirements and can shut down online accounts until this information is provided. Liability to account for and pay VAT falls to the seller.
HMRC have published guidance for businesses which include additional requirements on operators of online platforms to undertake due diligence checks on their sellers.
Joint and several liability notice to online platforms
If HMRC identifies any seller on an online marketplace such as Amazon or eBay that has not met their VAT requirements, they will issue the operator with a “joint and several liability” notice. The operator will then usually have 30 days to stop the seller from offering goods for sale in the UK on the marketplace.
HMRC’s tax investigations into online sellers
In 2019, HMRC investigated a total of 7,000 online sellers and flagged 4600 sellers as evading VAT on goods sold in the UK on popular marketplaces such as Amazon and eBay. Many of the online sellers have been shut down as a result of HMRC issuing notices to the selling platforms.
HMRC can commence an investigation into a business at any time. We can advise you from the outset and throughout the process.
What is VAT fraud?
VAT fraud is the simplest and most prevalent form of VAT fraud uncovered by HMRC. Here, VAT registered traders are accused by HMRC of failing to declare their actual or true liability on VAT returns by suppressing sales or inflating purchases, and sometimes both. Cash-based businesses such as restaurants, pubs, taxi firms, and launderettes are the main suspects targeted by HMRC.
HMRC Penalties for VAT evasion
HMRC usually deal with these cases under the civil evasion penalty regime. In relation to VAT and VAT credits, the prescribed penalty is 100% of the amount evaded and with respect to refunds and repayments it is the aggregate of the amount of input tax which was overstated and output tax which was understated. Penalty mitigation may apply (in terms of a reduction up to 40%) if one is able to self-report and provide an early and honest explanation.
Sometimes though, if the case meets one of the criteria for criminal prosecution, then HMRC will seek to commence proceedings in the criminal courts. Intentional evasion of VAT is an offence under section 72(1) of the Value Added Tax Act. The maximum penalty at the Crown Court is 7 years imprisonment and unlimited fine.
How do I appeal a VAT assessment from HMRC?
If a seller has not complied with VAT requirements, HMRC may issue a VAT assessment. If a taxpayer disagrees with HMRC, there is a 2-stage process for a taxpayer to dispute a HMRC decision:
i. HMRC can offer an internal review of the disputed decision or the taxpayer can request this procedure at any time. The review is an entirely internal procedure not completed by the original HMRC decision maker but by a different HMRC officer.
ii. A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review or within 30 days of the Tax Tribunal.
There are strict time limits on appealing to HMRC and the Tribunal so you should seek legal advice as soon as possible.
Expert London VAT investigation Lawyers
Our lawyers have the necessary expertise to effectively liaise with HMRC in respect of any inquiry or investigation, and if necessary assist our clients in either the civil regime before the civil courts/tax tribunals or to defend our clients before the criminal courts. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations
Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.
HMRC APPEAL DEADLINES – WARNING
HMRC decision letters containing penalties or imposing assessments offer time limited deadlines within which to appeal. Often these short deadlines (e.g. 30 days) can run from the date of the letter which means you have less time than you think. Your legal rights will become irreversibly time-barred if you fail to take legal action. Therefore, you should seek specific legal advice about your HMRC tax dispute at the very first opportunity so that you understand the time you have left. Failure to take advice or delay in taking action can be fatal to your prospects of success.