New laws enforcing online sellers to pay full tax come into effect

online tax fraud

Online marketplaces are now accountable for tax fraud committed by online sellers on their platforms, as new HMRC powers come into effect this week.

These new laws, which were first announced by Chancellor Philip Hammond during last year’s Autumn Budget, aim to level the playing field so high street and online retailers are not disadvantaged.

This means online marketplaces now have the responsibility to make sure sellers on their platform pay the right tax and to make sure fraud does not happen.

If sellers based in the UK or overseas are not paying the correct VAT when selling in the UK, and are not removed from the site following the issue of a notice by HMRC to the marketplace, then HMRC has the power to pursue the marketplaces themselves.

This could lead to fines and recovery of future unpaid tax by those sellers.

The rules also make online marketplaces liable for VAT where they knew or should have known that an overseas online seller should have been VAT-registered but was not.

The HMRC said the new powers sends “a clear message” that retailers and other businesses in the UK and overseas, online and on the high street “must all play by the same rules”.

Online marketplaces must now also make sure sellers using their platforms display a valid VAT number on the site when they are given one, to help buyers make an informed choice about buying goods from a VAT-registered businesses.

Marketplaces are also encouraged to help online sellers to understand the tax rules.

Meanwhile, businesses can apply to register for the Fulfilment House Due Diligence Scheme from April 1.

The scheme will require businesses that store imported goods for or on behalf of overseas sellers from outside the EU to keep certain records and perform certain checks on the goods they are storing.

“Whilst the honest majority pay what they owe, some businesses that sell goods online to UK shoppers are failing to pay the correct amount of VAT,” Treasury financial secretary Mel Stride said.

“This behaviour unfairly undercuts businesses trading in the UK that play by the rules, abuses the trust of buyers and deprives the government of significant revenue that funds vital public services.

“We are clear that everyone must pay their fair share of tax, and tackling tax evasion in all its forms is a top priority for the government.”


The UK was one of the first countries in the world to introduce tough powers to tackle VAT evasion by overseas sellers in September 2016, which has led to the removal of over a thousand non-compliant overseas businesses from selling goods online in the UK and to motivate thousands of others to register for VAT.

The new rules go further to strengthen and develop HMRC’s operational response to online VAT fraud and error from both UK and overseas businesses.

The HMRC also believes that the new measures will help protect around £1 billion of tax revenue by 2023.

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