Amazon and eBay have defended themselves as a report by MPs accuses online marketplaces of profiting from VAT evasion.
The Public Accounts Committee was particularly scathing of the taxman, saying HM Revenue & Customs (HMRC) had failed to get to grips with the scale of fraud, carried out by non-EU sellers on such sites.
Its report said the traders’ fast-growing and “illegal” practice of failing to charge customers VAT on goods housed in the UK was anti-competitive as it allowed them to undercut rivals by at least the 20% tax rate – putting UK retail staff out of their jobs.
It said the online platforms hosting the sellers were making more money than they should as they were raking-in commissions on sales that should have been blocked.
The committee described HMRC’s estimate of an annual loss to the public purse of up to £1.5bn as “out of date and flawed” and hit out at its failure to bring any prosecutions under new enforcement powers.
It urged officials to ensure, by March next year, that online platforms had imposed greater VAT controls on non-EU traders – with Brexit likely to exacerbate the problem as new trade arrangements become clearer.
PAC chair, Meg Hillier, said: “HMRC needs to be far tougher in protecting the interests of British businesses and taxpayers.
“As a priority it must inject more urgency into enforcement action. But it should also push the case for further new powers.
“Online marketplaces tell us they are committed to removing ‘bad actors’, yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders.
“They can and should do more to drive them out and we will expect online marketplaces to co-operate fully with HMRC in tackling non-compliance.”
An eBay spokesman said: “We want a fair marketplace for all our buyers and sellers.
“That’s why we have been working together with HMRC – and going above and beyond their requirements – to continue to ensure that our site is the best possible place to do business.”
An Amazon spokesman responded: “We are reviewing the committee’s recommendations and support efforts to ensure businesses and individuals selling across all marketplaces are VAT compliant.
“We offer extensive information, training and tools to assist sellers in their VAT obligations, and we work closely with HMRC on this matter sharing all requested data on non-EU sellers and promptly removing any seller they inform us is not VAT compliant.”
An HMRC spokesman said: “The UK has led the way in holding online marketplaces jointly liable for VAT evaded overseas.
“We introduced tough new rules last year allowing us to hold online marketplaces liable for unpaid VAT by overseas sellers and since then we have seen a ten-fold rise in the number of sellers registering for VAT.
“The new reforms will secure an extra £875m in tax to help pay for vital public services.”