UK losing millions on VAT exemptions for low-value packages shipped by eBay, Amazon

UK is losing millions of pounds in VAT avoidance and evasion as an increasing number of non-EU sellers dominate sales on online portals such as Amazon and eBay. These sellers, including hundreds from China, undervalue goods shipped to the UK and other European destinations so as to qualify for VAT exemptions.

This loss is estimated to increase as online buying spikes in the holiday season. Sellers benefit as goods valued lower than €22 in most EU member states and £15 in the UK are exempt from VAT, reported the Guardian.

"You're getting packages which the [online] customer might have paid €100 [£70] for. And they're coming in [through customs] identified as €20, or as gifts. And that's the abuse," according to a source with close knowledge on the subject.

Official estimates indicate a four-fold increase in the number of small packages shipped into Europe -- from 26 million in 2000 to about 115 million in 2013. This figure has since grown, in line with e-commerce's 14% annual growth.

EU states lose over €500m a year because of the large volumes of packages qualifying for the low-value VAT exemption, a European Commission report said in May. The actual loss to governments could be much higher because the estimate does not take into account under-declaration of the value of these packages by sellers.

Besides providing guidance on VAT, eBay said it reminds its sellers of the need to comply with legal obligations. "If eBay sellers are found to be breaching UK VAT compliance rules, we will cooperate with HMRC in all cases where HMRC provides evidence of underpayment of taxes," the company said.

Amazon said its sellers, who are not required to post their business details or VAT numbers on Amazon.co.uk, were "independent businesses" responsible for complying with their own legal obligations. It also said Amazon did not have the authority to review their tax affairs.