Sellers scramble to register for VAT as taxman closes £1bn loophole
Thousands of overseas online retailers are rushing to register for UK VAT as the Government closes a tax loophole costing the Treasury £1 billion each year.
HM Revenue & Customs (HMRC) has seen 7,185 internet retailers register for VAT since new Government rules were introduced in September, forcing overseas companies to pay the tax or risk being blocked from trading in the UK.
It marks a 10-fold increase from the 695 companies which registered for VAT last year.
The Treasury said that overseas sellers have had an unfair advantage over domestic retailers by not charging VAT on goods sold online, a practice which has cost the Government about £1 billion per year.
"With a growing number of overseas sellers dominating sales of popular gifts on online marketplaces, last Christmas alone it was estimated the Exchequer lost tens of millions of pounds to VAT evasion," the Treasury said.
UK-based warehouses for those overseas retailers will also be forced to join a "due diligence" scheme by 2018 or face penalties.
Together, the new VAT powers and warehouse scheme are expected to raise £875 million by 2021, the Treasury said.
Treasury Financial Secretary Jane Ellison said: "Having worked in the retail sector, I know what an important time of year this is for retailers and the millions of workers across the country who work in the sector.
"These new powers will mean that everyone has to play by the same rules and pay the right tax."