Online VAT fraud and error cost the British taxpayer between GBP1bn (USD1.3bn) and GBP1.5bn in lost tax revenue in 2015-16, according to a new report from the National Audit Office (NAO).
The NAO said online sellers based outside the European Union (EU) are not charging value-added tax on supplies to UK customers. VAT rules require that all traders based outside the EU selling goods online to customers in the UK should charge VAT if their goods are already in the UK at the point of sale. Non-compliance with these rules was equal to between 8 and 12 percent of the total VAT tax gap of GBP12.2bn in 2015-16.
The report says HMRC has been slow to respond to a significant increase in online VAT fraud over the past five years.
It added that the authority has not yet been able to assess how much non-compliance is due to a lack of awareness, error, or deliberate fraud.
The NAO said that no prosecutions have yet been made for online VAT fraud but HMRC has carried out many civil operations against suspected evaders. It said that the authority could make better use of seller data to identify potentially non-compliant sellers.
HMRC introduced new legal powers to tackle online VAT fraud and error in September 2016.
It has seen an increase in the number of new VAT registrations from non-EU sellers since the legislative changes were announced and came into force.