e-fficient
The National Audit Office, in its report 'VAT on e-commerce', has accepted HMRC's assessment that the overall risk to VAT revenue from on-line shopping, or e-commerce, is currently low. Sales over the internet trebled to £18.1 billion in the period 2002 to 2004 with a further surge around Christmas 2005. Around 2% of sales were for digitised products such as computer software and music which customers downloaded instantaneously. HMRC collected over £1 billion in VAT in 2005-06 on e-commerce goods and services.
The Internet has led to increased sales of goods by businesses outside the EU to customers in the EU. Some 45 million commerical packages are imported by post into the UK each year from countries outside the EU including the Channel Islands. Member States can exempt from import VAT commercial consignments valued below £18. Some overseas suppliers incorrectly describe or value the content of commercial packages to evade VAT. While the scale of the problem is difficult to quantify, controls at the border provide a safeguard. The NAO also recommends that HMRC should increase publicity campaigns on the Internet and through other media to inform UK customers of their liability for tax due. Working in partnership with overseas organisations to operate checks at the point of dispatch on goods which are liable for import VAT is a cost effective way of ensuring the payment of import VAT.
The main risk of businesses failing to register and pay VAT on e-commerce lies with businesses trading solely on the Internet and people who trade on e-marketplaces such as eBay. HMRC are developing an advanced search engine, called Web Robot, which helps to identify online businesses which should register for VAT, but have not.
The report 'VAT on e-commerce' costs £10.75 and is available from The Stationery Office, tel: 0845 7023474, or can be downloaded free of charge from www.nao.org.uk.
