VAT Evasion: Internet Retailers

Chris Heaton-Harris Excerpts

Thursday 14th January 2016 Westminster Hall

[Chris Heaton-Harris (Daventry) (Con)]

I beg to move,

That this House has considered VAT evasion and internet retailers.

It is a pleasure to serve under your chairmanship, Mr Hanson. I think it is for the first time, so I hope that I will obey House procedure sufficiently not to get into trouble and be told off.

First, I thank the Backbench Business Committee for giving me time to talk about this subject with those who are interested. I only bid for the debate before the Backbench Business Committee on Tuesday at 2.30 pm, so to receive a chunk of time in Westminster Hall so quickly is a great honour and a bit of a surprise. Consequently, a number of Members who wanted to participate could not be here. For example, my right hon. Friend the Member for Chesham and Amersham (Mrs Gillan) is holding a dementia event in the House at the moment, and even though she has been in this House for 23 years she still struggles to be in two places at one time. Thus she could not be here today to talk about how one of her constituents in particular, Mr Richard Allen, has been so gravely affected by the issue I will describe.

I guess I should open by giving a snapshot—a festive one. I do not think I am a cheapskate, but before Christmas I was looking for some cheap presents for my family online. I was particularly aiming for bargains available for next-day delivery. I hope Members will be interested to hear about these bargains; some of them might be partial to online shopping themselves.

Looking around, I was able to find an Apple iPhone 6 Plus, with 16 gigabytes, in gold. It was being sold at £572.64, which was £46.36 cheaper than buying it directly from apple.com. I found that offer online from a British-based seller. If I had purchased that iPhone—I did not, as it was way too expensive and far outside my ballpark figure—I would have been saving a great deal of money, and because it was a British-based seller, I would have been supporting a British small or medium-sized enterprise. I am a Conservative and we are, after all, in this together, and supporting SMEs is part of an important long-term economic plan.

I thought that price was a tiny bit unusual, but I did not spend too long thinking about it as I was Christmas shopping. I probably would not have thought of it again until, at one of the last events before Christmas where I met constituents, I met a business-savvy constituent of mine who had contacted me because he found himself in trouble. I bought him a cup of tea, we sat down and we went through what had been going on with his business.

My constituent had 20 years of experience in e-commerce, website development and internet marketing, and had set up an online retail business in 2010 selling goods on his own website, eBay and Amazon. He told me:

“Our sales grew to £689,000 a year by 2013 and we ranked in the top 5 sellers in our market sector on eBay. In early 2014, in the space of 6 months, our sales collapsed from £57,000 to £21,000 a month. In the past 18 months, our sales have increased to £30,000 and we struggle to compete on a daily basis”

with what was happening online among his competitors. He said:

“My company has now lost over £550,000 in sales and we are currently losing £25,000 in sales a month”.

He believes that is because a “VAT fraud” is taking place. He went on:

“Almost all of our UK based competitors have seen equally dramatic loss in business, with some shutting up shop completely.”

He said that many of his UK competitors had made their staff redundant and moved out of their warehouses. He himself has lost his life savings and is talking about selling his house. Some individuals are close to bankruptcy. He told me that he now lived in rented accommodation, running a business from his dining room.

He gave me an example of what is going on. He sells bicycle lights for £11.99, making a £1 profit, while other online sellers currently sell the same product for £7.99. That competition in price is a no-brainer for the consumer; the two products are identical, so which one would any of us choose to buy? That means that his turnover and profits have halved in two years.

If someone flicks through the website for that other retailer, which might well be a UK-based company, it seems to have a legitimate VAT number. However, it might be neither legitimate nor a VAT number, and then my constituent might have a problem, because that competitor would have an unfair advantage. My constituent told me that he has been ill with the stress that he has been caused, and he estimates that he and his family can last only another six months at the current pace, at the end of which his business will collapse.

Let me go into some more detail, because Members might wonder what caused such a change of fate for my constituent and his business. He told me the precise reason for it; he believes that it is VAT evasion. Of course, that is why I asked for the debate, and I intend to explain a little further the background to the problem and its growth.

Online marketplaces such as eBay and Amazon do not make it compulsory for sellers to display verifiable business information, such as an accurate company name, a physical business address and a VAT number. It is simple to see, through the online seller information, when a company is not UK-based and displays no VAT number. Several foreign companies have now decided to have a UK-based company number and, as I have said, they have put some sort of number in the field that shows they have a British, or even German, VAT number.

For non-established taxable persons—companies from outside the UK that warehouse in the UK and dispatch goods from the UK to customers in the UK—the correct procedure is to register for VAT as soon as they have any stock in the UK. Since 1 December 2012, all NETPs supplying goods in the UK have been required to register for VAT and to apply VAT to all sales from their very first supply of goods or services onwards. There is no threshold.

Sellers on online marketplaces used to advertise their business locations as UK-based, yet they would be a foreign company. That could be spotted through delivery times. When I used to go online, the delivery time for those companies would be from 21 days to 63 days, because the product was coming from China. That no longer happens. Consumers made a choice—they could pay a bit extra for goods that would turn up in the next few days; or a bit less for goods that would turn up after quite a long time.

To combat that problem, the online retailers introduced marking systems to allow customers to rate down a seller for late delivery, causing the seller from afar some problems and prompting the growth of fulfilment centres, as some retailers tried to overcome the bad reviews that they were receiving.

If we put together those two issues, it is suggested that small overseas sellers in their thousands are now importing goods into the UK in advance of orders and not properly registering for VAT. Sellers can then arrange for the online marketplace to dispatch the stock from its UK warehouses once orders are placed. Through that route, they not only reduce delivery time but benefit from the added bonus of avoiding VAT charges. They can therefore charge lower prices than their UK-based, VAT-paying competitors.

Chinese-owned fulfilment companies in the UK provide special eBay and Amazon fulfilment services for Chinese and other non-UK businesses. Chinese sellers allegedly send their stock, pre-packed and barcoded, to fulfilment centres in China. The stock is then forwarded on in bulk to their UK fulfilment centres. How Chinese sellers move their stock into the UK is unclear, as is whether they pay any duty at the time. Indications suggest that by using the low-value consignment relief and low-value bulk import procedures, Chinese sellers are bringing in vast volumes of goods, many of which are undeclared. They appear as items already sold to the UK, but they have been pre-sold and are held in UK fulfilment centres. Presenting themselves as a UK entity enables the sellers to claim that they are under the VAT threshold as a reason for not displaying a VAT number. That is an illegal practice, and it threatens the viability of UK SMEs in online retail, since those committing VAT fraud can undercut prices and provide fast delivery from their UK-based stock. British retailers say they are being put out of business by such foreign companies, particularly from China, selling their products through e-retailers such as eBay and Amazon.

To return to my Christmas shopping trip, I decided I would buy a handful of extra cables for my Apple iPhone. When I was clicking through the system, I thought the cables were being sold by a UK-based company, with VAT charged. I just looked at the price on the screen—I did not realise that I was almost certainly buying from a company that, although registered in the UK, had a fake VAT number. I did not realise that I probably would not be paying VAT on the cables.

By failing to account for VAT, sellers are acquiring a distortive advantage over UK businesses in the marketplace. The final price paid for goods by the consumer is much lower than it would be from UK competitors. Chinese and other non-UK businesses therefore now dominate many market sectors on eBay, and there are huge numbers of them on Amazon, too.

The unbranded Android smartphone and tablet market sector on eBay.co.uk generates sales of some £80 million a year. Chinese sellers account for 40% of those sales in the UK, representing about £32 million a year. The top Chinese seller in that market sector, which lists stock located in the UK, makes annual sales of £2 million a year and is not VAT-registered.

Adding insult to injury, fraud breeds fraud. Due to built-in online algorithms, those that sell more on web marketplaces get a prime position at the top of searches and listings. Given that they are then the first listing a consumer sees when searching for an item, they sell even more, pushing their VAT-paying competitors further out of the picture and ensuring that they remain at the top. That means that the sellers can monopolise online marketplaces, leading to price distortions in UK online retail and VAT-registered companies being unable to compete. Not only does that result in the UK taxman losing money from unpaid VAT, but the knock-on effects for UK business and competition are huge.

I will give some specific examples that have been highlighted to me. Photo Direct is making sales of just under £10 million. If it is evading tax, that equates to £1.67 million in VAT evasion a year. It started trading on eBay.co.uk 12 years ago in July 2003. It is one of the largest VAT-evading companies found trading on eBay and it runs two eBay business seller accounts. It specialises in selling VAT-free cameras, iPhones, iPads and tablets. Its stock is housed in the UK. It is using a Hove-based PO box not displaying a VAT number or full company name. In December 2014, it made sales on eBay of £838,412. Its bestselling item was the familiar Apple iPhone 6 Plus 16GB in gold, which is the one I described slightly earlier. Photo Direct sells it for £572.64, which is £46.36 cheaper than Apple.com. That item alone accounted for £36,649.21 of sales. On contacting the seller to inquire whether a VAT receipt would be issued for a £2,000 camera, the seller confirmed that the price does not include VAT. Its PayPal account traces back to a business in Cedarhurst, New York, called Robscamerastore.

Another example: eBay seller My-elink is run by CSJ Communications Technology Ltd. It started trading on eBay.co.uk eight years ago on 14 November 2008. CSJ Communications Technology operates seven eBay business seller accounts, all using the same company name and VAT number. Combined sales were £5,812,308 last year, equating to an expected amount of VAT of just under a million pounds, or £968,718. A company name, an address, which is in China, and a UK VAT number—150540153—are all listed. However, the VAT number is not registered to the Chinese company CSJ Communications Technology; it is registered to Pocketdeal Ltd, a UK-registered company that was incorporated on 23 August 2012. The VAT number does not belong to CSJ Communications Technology.

Those kinds of evasion have been found to occur online on at least the two major platforms I have already mentioned: Amazon and eBay. The extent of the evasion is dramatic. If I read out a list of the sellers that have been accused of committing such fraud, Members here today might become a little bored with me, but I will not let that stop me. The founders of vatfraud.org, working alongside trading standards officers, have identified 500 VAT-evading overseas business seller accounts.

To start with, I will go through a small range of the UK eBay sellers with no VAT numbers. I have talked about Photo Direct, but the eBay sellers universal-electronix, richmondcam, mechanic_warehouse and right89hifi all have turnovers of more than £3 million a year. Further down the list, the 37th largest seller without a VAT number is digitalbravo2014. It had a mere third of a million pounds of sales. The company is registered in the United Kingdom with UK stock, but has no VAT number.

Transferring platforms, I could talk about Amazon stores with no VAT number listed. I could direct Members to Ringke Official UK Store, which sells phone cases and accessories. It is registered in Texas and has no VAT number listed on its Amazon.co.uk page. It also offers Amazon Prime free delivery. I can buy from that seller and get my goods much quicker than from another retailer, with the advantage of possibly not having to pay VAT. Zeto UK sells portable phone chargers, games, computers, headphones, electronic accessories and so on. It has no VAT number listed anywhere on its page, and its orders are filled by Amazon. Inception sells mainly Apple products. It has a customer services address in Manchester, a business address in Hong Kong, no VAT number listed and orders fulfilled by Amazon.

I will move further down that list of case studies. They are from vatfraud.org, so they are all online for Members and others to have a look at. When the case study was done, Rearth USA LLC, an iPhone and smartcase provider, was one of the largest sellers of such items on Amazon.co.uk, Mr Hanson. You might even have looked at the goods online yourself. It also has Amazon stores in other EU countries with no VAT numbers listed. A secret shopper bought a product from this company and asked for a VAT receipt. The company stated it was in the process of applying for one, apologised and refunded the notional VAT that would have been paid by the customer for that good.

So we have companies that are listed with VAT numbers that are not correct VAT numbers. We are able to check whether a VAT number is listed to the company we might have bought from. The European Commission website has free access, so it is easy to do so. A handful of such companies are trading on Amazon at the moment: JEDirect, Ipow-Official and EasyAcc U. There are also companies with no VAT number listed and none provided when asked. These include Hayesmall; Gugou; SLEO Accessories; Buyee, which has a UK local delivery service as well; InstaNatural EU; Ulike; Oxford Street; and Nestling Store. There are hundreds and hundreds of such companies.

Some, like GIL ENTERPRISE, state that all their prices include VAT but, again, refuse to provide a VAT receipt should someone ask for one. Companies with VAT numbers that do not match their business name populate the websites in great numbers: Avantek UK, which has the business name Claybox Ltd, and Simple Tek, which has the business name Shen Zhen Shi Futian Qu Sai Ge Dian Zi Shi Chang Qun Jian Dian Zi Shang Hang, so perhaps Simple Tek is better, but it is not right.

BUTEFO has the business name Shenzhen Kuanchuang Technology Company; LERWAY Technology Company has the business name shenzhenshi leerwei keji youxian gongsi; and Bravo Tech has the business name Wuhan Value Link E-Commerce Ltd. They all have VAT numbers that do not match their business names. I have pages and pages of such companies. To be sure of myself, I checked with the Clerks about privilege before I started talking today.

There are literally hosts and hosts of such companies out there trading in the United Kingdom. Anyone in this Room could go to the 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.

It is alleged that the sellers are committing VAT fraud by failing to supply a VAT number, by presenting themselves as UK companies when they are not, or by fraudulently giving out a VAT number that does not belong to them. They despatch their stock in the UK on Amazon or eBay.co.uk. The combined sales on a list of more than 500 companies come to £300 million a year. If these sellers were allowed to trade for another three years, with the growth that they have at the moment they would generate estimated sales of £1.2 billion; if they evade VAT, they would evade about £200 million between them; and eBay would earn about £110 million in seller fees from them. These are just a sample. I am afraid it is likely that there are many more non-UK sellers committing VAT fraud on eBay, Amazon and other sites.

Paul Miloseski-Reid has been the lead officer on e-commerce for UK trading standards for the past nine years. Based on an analysis of thousands of marketplace traders, he estimates that up to £2 billion of VAT is being lost to the Exchequer each year. Paul estimates that online sales adding up to £10.8 billion annually come from overseas sellers who are not paying VAT. This huge number does not tell the full story. On top of the £2 billion that is lost through unpaid VAT, there are millions lost elsewhere through the indirect effects of this fraud. There is the loss of revenue and profit for UK businesses that are undercut and beaten on price and delivery time. Then there is the loss that comes from companies closing and the loss of jobs; the loss of corporation tax; the loss of PAYE and national insurance; and the loss of import VAT and duty through low-value bulk imports. Those are all big losses to our Exchequer. If we couple those with the fines that should be owed and backdated VAT payments, the £2 billion that could be recouped would undoubtedly be much more impressive and larger.

With such a large amount of money on the table, it may seem odd to Members that the practice is allowed to continue, but the firms involved insist that responsibility for charging the correct VAT lies with the sellers using the sites, and eBay and Amazon say that they cannot be held liable in cases of evasion. However, third party liability for VAT is now an established legal principle in the European courts. It was developed to combat VAT carousel fraud where some of those involved in the fraud were not necessarily the party fraudulently claiming the VAT refunds. Axel Kittel v. the Belgian Government and the Belgian Government v. Recolta Recycling SPRL were joined cases that introduced a test in 2006 for VAT fraud, which became known as the “Kittel principle”.

As HMRC explains on its website,

“The test in Kittel is simple and should not be over-refined. It embraces not only those who know of the connection but those who ‘should have known’. Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. He may properly be regarded as a participant for the reasons explained in Kittel.”

The term “online marketplace” is not really a good description of what these websites actually do. In reality, rather than just offering space for retailers to operate like a marketplace would in the real world, they offer marketing, as well as payment and fulfilment services to third-party sellers. They not only advertise the goods but are handling the stock, issuing invoices and collecting payments. Some of them also offer the complete warehousing and fulfilment solution. Such websites claim, however, that they are unable to police sellers even if they were obligated to do so, which is obviously not true. It is not unknown for the websites to police sellers in relation to the products that they sell. Until the practice was banned by the EU, some of them prevented sellers from offering items on other websites at lower prices. If the websites can track something as complex as that, they can easily identify sellers who should be accounting for VAT on supplies.

Such websites regularly police sellers with regard to money laundering rules, EU directives and the like, and sellers have to provide details of their company address, passport details, copies of tax returns and other detailed information. Even to be able to start placing goods with them, the websites make their sellers sign up to terms and conditions that enable them to demand any data they require, including detailed sales figures and VAT data. It is therefore beyond doubt that these websites are able to establish the VAT status of a seller on their website. They could, and should, easily identify and exclude sellers that should be registered for VAT but are not. At the very least, they could detect and remove sellers that are using invalid VAT numbers, but they seem unwilling or unable to do even that.

The websites go far beyond what would normally be understood as the remit of a marketplace. The cost of the services provided in these so-called marketplaces is billed to the seller and included in the sale price of the item. It can, therefore, be demonstrated that the websites are effectively part of the production chain and so part of the supply chain. The websites objectively benefit from any fraudulent VAT transactions because the final sale price includes the VAT that should have been paid—fraudulently evaded VAT—from which they calculate their commission.

The websites benefit from the transactions and participate in them, they are part of the supply chain, and they are fully aware of the VAT status of the sellers on their site because they request VAT details from all sellers. They are also aware when supplies are made by sellers in the EU and in volumes that exceed the VAT registration value threshold. For all those reasons, they clearly do know, or at least they really should know, that VAT is due when sellers make such taxable supplies available for purchase in the EU. According to the Italmoda judgment, they are liable for any evaded VAT, as is any company in the supply chain upstream of the perpetrator. It is also a criminal offence for anyone to know about VAT fraud and not report it.

eBay has certainly been made aware of specific cases, and, bearing in mind the introduction of the non-established taxable persons provisions and the luxury of Amazon’s huge, lovely, wonderful legal department—which is definitely watching our proceedings—it is difficult to imagine that both companies have no idea that VAT evasion is occurring on their websites. The findings I have described and all the accompanying information has been reported to HMRC’s VAT fraud team, the Treasury and trading standards. The latter has been working with vatfraud.org to identify non-UK businesses with stock located in the UK that are not displaying VAT numbers. Trading standards submitted an initial list of 150 such non-UK sellers to eBay, asking the sellers to update their business information and provide VAT numbers in compliance with the EU electronic commerce directive 2002. eBay stated that it was the duty of HMRC to establish which sellers were VAT-registered.

The issue has been growing and left unchecked for some time, and we do not know the full extent to which it might have damaged UK small and medium-sized enterprises and how much VAT we might have collected had it all been paid correctly. A former HMRC inspector tried to deal with unregistered sellers on eBay a number of years ago, and told me that HMRC came to a dead end when eBay refused to co-operate. Yet, under EU law, HMRC could have tried to establish liability on the part of eBay. VAT evasion on online market places is a problem across the internal market. If the UK initiated action in the courts, I cannot believe it would not be supported by the European Commission, other member states, and all legitimate VAT-paying businesses in the EU. Establishing VAT liability for fraud on online marketplaces would end a problem that undermines fair competition across the EU. It would also reaffirm the Chancellor of the Exchequer’s stated intention to make positive reforms to the EU’s internal market.

The problem has existed for long enough, and it is not difficult to find, as I did in my office last night, when in just a few moments of amateur detective work we found a factory in my constituency. There is a service whereby people can register their official UK company name and address. We found that more than 900 businesses had registered. By clicking through a number of them, we found that a vast number of Chinese-registered businesses had a UK company registered in my constituency. Some were trading on these online platforms, and we could find none with a VAT number. If my staffers and I, who are no experts, can find that so quickly in my constituency, I am sure HMRC can.

Yesterday, a number of Members raised this matter at a meeting of the Public Accounts Committee. It was reported quite widely in many newspapers. I was pleased to see that the head of HMRC, Dame Lin Homer, testified that HMRC is taking the issue seriously. Perhaps a little prod from my hon. Friend the Minister would be helpful to ensure that it is taking it very seriously. Today’s Financial Times, though, reported a worrying statement that was made in the Committee: will the Minister comment on the head of HMRC saying that e-retailers were not accountable for evaded VAT? I do not believe that that is the case, based on established tax and European law.

I would really like to know why something that is so easy for us all to spot and prevent has been allowed to grow to such a size. In a way, I feel a bit guilty myself for not clocking something so obvious. When I went online before Christmas, I was thinking, “That’s not a bad price. It’s probably a Chinese company, but they say they are UK-registered, and I am going to get my good in a day or two’s time, so I’m just getting a good deal, aren’t I?” I failed to clock that, if a deal looks too good to be true, it probably is. Unfortunately, in this case, not being true is costing the tax collector, our Government, billions of pounds each year. I would like to think that the motion we are debating is the beginning of the end of that practice.

[Several hon. Members rose—]

--- Later in debate ---

[Rob Marris (Wolverhampton South West) (Lab)]

It is a pleasure to appear before you for the first time, Mr Hanson. This has been an important and fairly short debate. The hon. Member for Daventry (Chris Heaton-Harris), whom I praise for securing the debate, indicated when seeking it that he thought an hour and a half would be enough because the issues are quite simple. The solutions are quite complex, but the issue we are ventilating today is clear. It is about fraud. It is not tax avoidance, it is tax evasion.

I thank the House of Commons Library and Retailers Against VAT Avoidance Schemes or RAVAS, which I met on 17 November last year. At the same time, I also met Neven Juretic, who is the director of Maikai Ltd and a constituent of the right hon. Member for Arundel and South Downs (Nick Herbert). Mr Juretic suffered considerable losses, as the right hon. Gentleman outlined today. I also met Paul Miloseski-Reid, the UK lead trading standards officer. I have to salute Mr Juretic for the immense amount of work he has done not only in successfully lobbying his excellent local MP, but in producing an excellent document that proposes a number of solutions, as well as outlining the scope of the problem that our country faces.

The sector is huge and growing. The House of Commons Library tells me that UK average weekly internet retail sales are £1.1 billion, or about £57 billion a year, and growing. That is more than 15% of all UK retail sales, and the figure has gone up by two thirds since 2010—it is growing massively. Many of the frauds involve small consignments, such as tablet computers or iPhones, and the number of small consignments arriving in the European Union from outside the EU has gone up from 30 million in 1999 to 115 million in 2013, the latest year for which I could get figures. No doubt the number will have gone up considerably since then.

According to HMRC’s preliminary estimate of the tax gap for 2014-15, 10.4% of it, or £13 billion, is VAT. No hon. Member is suggesting that a crackdown on internet retail sales fraud would recoup all of that amount, and not all VAT fraud in the United Kingdom is to do with internet retail sales, but it is a big and growing problem.

The European Union requirement on companies—and individuals, I think—to register is covered by the EU electronic commerce directive, which we adopted in 2002. That is going back 13 or 14 years, and given the pace of change it is likely to need revisiting. It certainly needs to be enforced. I am unclear about whether the provisions of the directive are being enforced in the United Kingdom, but that might be because of my misunderstanding of what it entails.

My understanding is that a non-EU person trading in the EU—the wording in legislation is a “non-established taxable person”—is required to register for VAT if making “taxable supplies” under the meaning of the principal VAT directive, regardless of whether trading is above the £82,000 threshold for registration required of a UK or EU company. Apparently, therefore—the Minister will correct me if I am wrong—legal persons from outside the EU are breaking that directive when goods are sold over the internet into the United Kingdom, yet there appears to be insufficient, if any, enforcement.

Mr Juretic proposed various solutions in his excellent report on billion-pound frauds. I am sure that the right hon. Member for Arundel and South Downs looked at those, and he has mentioned some of them. I am not sure that we need a specialist unit, but many of the solutions that Mr Juretic floated are worthy of discussion in some detail. I will not discuss them all today, but HMRC ought to be looking at them and at similar things. That gentleman has considerable experience, has the bit between his teeth and has done a huge amount of work.

The National Audit Office, too, has looked at the issue in some depth—in about 2014, because it was covered in a report on HMRC’s 2012-13 accounts. I might be putting a gloss on what was said by the NAO, which can speak for itself, but my understanding of the report is that the NAO was not convinced that the steps taken by HMRC on online VAT retail fraud were sufficient. The report made some suggestions.

We need action from the Government. I have a considerable amount of time for the Minister: he is mild-mannered, clever and dogged, and he has had his brief for a long time. He can probably remember, as I do, discussing VAT carousel fraud in Finance Bill Committees about eight years ago, which was the fraud du jour. There was a huge amount of fraud, and Labour, in government, put through measures that were largely supported by the then Opposition party, which now forms the Government. The then Opposition certainly entirely supported the principle of cracking down on VAT fraud, because not only is it an attack on much-needed Government revenue, but it means that there is not a level playing field for businesses such as that of Mr Juretic.

VAT fraud puts people in the UK out of work. It is not a victimless crime that is only about money. It is about jobs, people’s lives and how we as a society trade. That is changing, so we need to make changes to trade honestly. Consumers in this country are not getting a fair deal in knowing what they are buying and from whom.

I have personal experience of the situation, with a company called LightInTheBox—not that it was fraudulent. I tried to buy a tablet computer from it. I understand that sometimes such goods come from overseas, even from outside the European Union, so I looked carefully during the transaction, but I was never told that the computer was coming from outside the European Union. I thought, “Great, a standard tablet computer,” but it took six weeks to arrive and had come from China. I also had a demand from the Post Office to pay approximately £50 in import duties—understandably, because the goods had come from outside the European Union, addressed to me. I got the money back from LightInTheBox, incidentally—an honourable company, which paid my money back and accepted the computer back.

Though I say it myself, I am an educated person and I am of average skill at using the computer, but I do not believe that I was told, when I made that purchase, that the tablet computer was coming from outside the European Union. That might have affected my purchase, because things take longer to arrive from outside the EU and there is the possibility of customs duties, which are quite properly payable on something imported into the EU. It is easy to get caught out. People who want to act honestly as consumers might quite unwittingly be aiding and abetting fraud. It is not about consumers saying, “Oh, I’ll have a bargain. I don’t care about VAT”, although I accept that some might be like that. Other consumers want to play it straight but are misled by websites.

The Government must take some responsibility, because they have been in office for nearly six years. This fraud undoubtedly existed before, so when my party was in government we could have done something about it, but it has gone up massively since then, commensurate with the increased number of online retail sales. None of us knows for sure how much fraud there is, but we know that it is going on. Its extent is a bit unclear, which is one reason why HMRC seems not to have taken the issue as seriously as it should. Had it done so, we would know a bit more.

There has been a series of parliamentary questions, written and during debates, going back almost two years to February 2014. In what I think was a debate in Westminster Hall—the Minister will know—judging from Hansard, my hon. Friend the Member for Cardiff West (Kevin Brennan) asked questions. Subsequently, my hon. Friend the Member for Chesterfield (Toby Perkins) and my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey), now a shadow Treasury Minister, asked written questions. In the Lords, Lord Lucas has asked questions. This is an ongoing concern of Members of both Houses, and the Government should move a little more quickly on it.

When I read, as the hon. Member for Daventry did, remarks that the newspapers attributed to Dame Lin Homer in the Public Accounts Committee yesterday that the Revenue had been investigating online trading VAT evasion since the spring of 2015, my heart was not filled with joy. Dame Lin has, to say the least, a mixed track record of success in public service. To be fair to her, other people had indicated that the Government were looking at the matter, including the Minister in the debate here almost two years ago. He said:

“HMRC is working to identify and address the main risks posed by commercial online operating models for routing goods into the UK.”—[Official Report, 26 February 2014; Vol. 576, c. 409W.]

It was good that HMRC was looking at it two years ago, but what has happened in the intervening period? The Minister will no doubt tell us, but for those of us not in HMRC—I suspect this is the case for the hon. Member for Daventry, though he can speak for himself—it is not entirely clear what has happened since the Minister said the risks were being investigated. That is troubling.

Lord Ashton said, I think last autumn, that this was being considered at a senior level, so the Government are aware of it and Members in both Houses have been pushing the Government, but we hear reports from Mr Juretic—Mr Miloseski-Reid also referred to this—about insufficient co-operation between HMRC and trading standards. That is taking place against a backdrop where in many parts of England, and I suspect Scotland as well, local authority income is dropping, yet trading standards comes under local authorities and for some of those authorities a strong trading standards department may appear to be a lower priority than, for example—and understandably—social care for the elderly. In that case, what gets the chop? Unless HMRC really seizes this problem, it is likely to get worse.

The Government have made a bit of movement in the draft Finance Bill 2016, which laudably has been published. I laud the Government for the number of consultations they carry out on possible changes to tax-related matters—there are probably dozens outstanding at the moment. The draft Bill has 88 clauses and clause 79 touches on this matter, though, as I understand it, it does only touch on it, because it deals only with data gathering. It is important to gather data to know who is selling what to whom and who is registered and so on, but while the Government, with all their resources, are probably more correct in their assessment of law than I am, I am not sure whether they have got it right on the law in relation to retailers such as Amazon.

It is easy to focus on Amazon. I am sure that it is not only Amazon that has questions to answer in this regard, but it is an enormous company with enormous sales in the United Kingdom, so some of us—I think the hon. Member for Daventry did to some extent—use it as a bit of shorthand for mass online retailers. That is fair enough, and he may well be right that they are watching us. Despite my reservations about reports of working conditions at Amazon, I do use it for internet purchases. I did not buy the said LightintheBox tablet through Amazon.

I, like I suspect many people, have registered my credit card details with Amazon. I have a username, password and so on with it—in fact, it is the only organisation with which I deal that I ask to remember my credit card details. When my credit card statements come, charges for purchases I have made are taken from my credit card account in the name of Amazon, through its different permutations, because Amazon has different legal entities in the European Union. It does not just say Amazon; it will also have some initials or a qualifier that shows which part of the Amazon empire it came from.

I am not a contract lawyer, but as a lawyer who knows a bit about contract law—I knock about on it—that says to me, as a consumer, that I am buying from Amazon. When I make a purchase, I do not give my credit card details to another company; I give them to Amazon. On the face of it, when I look at my credit card statement, I see the money is going to Amazon. Therefore, I have a contract with Amazon.

It is often but not always the case—Amazon also sells direct—that transparently, as part of the purchase process, that order is fulfilled by another company. I do not have a contract with that other company; I have a contract with Amazon. Amazon presumably has a contract—it certainly has an agreement—with that fulfilling company, which might be Bloggs Lighting Ltd or whatever, but my contract is with Amazon. If Amazon has a contract with me and, one surmises, with Bloggs Lighting, Her Majesty’s Government have, on VAT fraud and evasion, considerable leverage with Amazon to say, “You, as a legal entity”—or several legal entities as in Amazon’s case—“trading in the European Union are selling to UK consumers and the goods are delivered in the UK.” That is because I am buying from Amazon.

That is my understanding of contract law. The Minister may be able to dissuade me and tell me that I have misinterpreted it, but, if that is the case, we should take another look at the law. As I, as a consumer, am buying from Amazon, it should be dealing honestly with me and dealing legally with those companies from which it buys the goods that it sells on to me.

Amazon should therefore be susceptible to legislation in the United Kingdom as to how it conducts its business. That legislation should not simply be the data gathering in clause 79 of the draft Bill, although that would be helpful. The legislation should also be that Amazon must ensure that those companies from which it buys goods that it then sells on to UK consumers online are VAT registered if their turnover is above the UK threshold or if they fall under the other legal architecture for VAT registration. That is because one imagines that, often, those companies are doing quite a bit of business with Amazon—Bloggs Lighting may sell a lot of lighting stuff to consumers who go on to Amazon.co.uk. Therefore, morally or legally, I do not think Amazon can step back and say, “We are an intermediary.” The hon. Member for Daventry may know that, in the school playground in the west midlands, when the teacher says, “You did something,” they say, “It wor’ me, Miss,” which means, “I am not guilty; I did not do it.”

[Chris Heaton-Harris]

Is there not an incentive for Amazon and other e-retail marketplaces to sort this problem out? They earn their money from commission on the total price charged. While the market might have grown a bit, the cut that Amazon would receive from a £10 item would be better than the cut from £8 it might receive for a similar good that might have been sold in the way that I detailed in my speech.

[Rob Marris]

I certainly agree with the hon. Gentleman. To take that on one step, if someone were to buy an Apple iPhone through Amazon for, say, £500, which retails from Apple online at £600, and if the reason for the price difference is not a more efficient business model but VAT evasion, Amazon is at least morally complicit in that, because it gets a cut of a £500 sale that it would not have had if the consumer had gone direct to Apple. Therefore, in that example there is a moral risk to Amazon, and, I think, a legal risk, that it is benefiting financially from fraud, because it gets a cut of a sale that would not have been made had the fraud not existed. It needs to look closely at what it is doing.

The Minister said in a written answer on 26 February 2014:

“HMRC (in liaison with Trading Standards and other agencies) is undertaking intelligence driven investigations and projects to address concerns relating to the activities of online companies, including undervaluation of goods at import.”

That is very welcome, but it was two years ago that HMRC was undertaking those investigations and projects. I hope the Minister can tell us today that some of those investigations have at least made progress in the past two years. I realise that some of those investigations may have taken place and, in legal or criminal terms, led nowhere—that is the nature of investigations. We might find that there is smoke but no fire, as it were. In other cases, we might see smoke, investigate and find fire. Either way, I regard that as progress. If something looks a bit odd and we investigate it, we will sometimes find there is nothing illegal going on, and we will sometimes find there is something illegal going on. Will the Minister tell us how those investigations have proceeded and how many there have been?

The Minister also said in that written answer:

“Where the online trader is a non-EU company, HMRC has no jurisdiction.”—[Official Report, 26 February 2014; Vol. 576, c. 409W.]

I understand that, but two things occur to me. First, the 2002 EU electronic commerce directive should be enforced in the United Kingdom. Secondly, if HMRC has no jurisdiction over those non-EU companies, some but not all of which will be Chinese, HMRC should, as I have stressed, look at the companies over which it does have jurisdiction—for example, Amazon or eBay. Those are two of the major companies engaged in online retail sales in the United Kingdom, and those sales should be subject to UK jurisdiction. I understand all the difficulties of different legal jurisdictions, both within and without the European Union, but we need to get a grasp on this.

Simple data collection, as provided for in clause 79 of the draft Finance Bill 2016, is a step forward but is not sufficient. I hope the Minister will reassure us today that some of the investigations to which he referred two years ago have led somewhere and borne some fruit, and that HMRC will look seriously at the suggestions put forward by Mr Juretic in his report. If the Minister cannot enlighten us today as to which of those he thinks are worthy of a closer look, perhaps he could write to Members. I hope the Government will look closely at what legal powers it could take to address the Amazons of this world and of this jurisdiction.

--- Later in debate ---

[Chris Heaton-Harris]

It is a pleasure to serve under your chairmanship, Mr Davies, and I welcome you to the debate.

When I bid for time for this debate at the Backbench Business Committee, I was hoping to get 90 minutes sometime at the end of January so that I could secure the support of the former Chairman of the Public Accounts Committee, the right hon. Member for Barking (Dame Margaret Hodge). I served on that Committee with her for five years, and we had plenty of conversations about online marketplaces, how much tax they pay and how much tax they should pay—she was very interested in the issue.

Given that we had just 24 hours’ notice of the debate, I am pleased that we have the Minister, the shadow Minister and the SNP spokesman here. I am also pleased that my right hon. Friend the Member for Arundel and South Downs (Nick Herbert) was able to attend and talk about his constituent’s experiences.

Obviously, I was pleased to hear about the investigations and goods seizures that are going on, because my constituent would like to be assured that HMRC is not reacting slowly to a situation that is developing extremely quickly. More and more of these companies are being formed, and dormant companies that have already been registered are being activated and used in the way I described.

I am pleased that there have been high-level meetings with the top online marketplaces, and I would be fascinated to find out their reaction to the inquiries that are taking place.

[Rob Marris]

I do not seek to draw the hon. Gentleman on the timing, but perhaps he could say whether he understands why some Members, certainly on the Opposition Benches, feel a little frustrated—he may or may not express a similar view—about the apparent lack of urgency with which HMRC is dealing with this growing problem.

--- Later in debate ---

[Chris Heaton-Harris]

I have to say that I am with my constituent on this. I am particularly frustrated that it has taken a while for HMRC to publicly gauge the level of activity, although I have no idea what might have happened behind the scenes—having been a member of the Public Accounts Committee, and having had many a private briefing from HMRC over the last five years, I know that some things are best left unseen by the public eye. However, it has been frustrating for retailers who feel they are being unfairly competed against.

As I said, I was pleased to hear about the high-level meetings between the online retailers and officials. However, I was frustrated by the quote from Dame Lin Homer—the Minister repeated it today—suggesting that the Government and the tax authorities perceive no liability on online retailers. Even a tiny hint in a different direction would change behaviour very quickly.

There will be negotiations in the coming weeks, however. There is also the meeting on 26 March about the customs elements of this fraud. Potentially, there will also be opportunities to investigate this matter further in the Finance Bill and to look at the possibilities for giving the Government a helpful nudge so that they are as engaged as the Minister has been.

I thank everybody for their attendance, and I thank you, Mr Davies, for your kind guidance over the 13 minutes you have been here.

Question put and agreed to.

Resolved,

That this House has considered VAT evasion and internet retailers.