EBay has proved to be a great platform not only for individuals selling used or second-hand items but particularly for sole traders and SMEs that wish to sell products online but lack a full e-commerce facility on their websites or a large enough advertising and internet marketing budget to attract enough visitors to their own site. It has become a popular starting point from which to grow a small business rapidly and many sellers are taking advantage of a type of business model that simply wasn’t available 15 years ago.
However, as many eBay businesses in the UK grow and start to fall under the value-added tax (VAT) regulations they have been put at a distinct disadvantage due to some sellers outside of the EU failing to display their VAT figures. Whilst Her Majesty’s Revenue and Customs (HMRC), the UK tax authorities, are doing all they can to crack down on tax evasion, they have stated that failure on the part of online traders based outside the EU to include VAT is not actually a breach of the law, as it currently stands. Because of this situation, a substantial number of small UK companies are feeling the effect on their profits because they are obliged to charge VAT. With VAT at a current high rate of 20 per cent some UK based eBay traders are actually having to shut down altogether because they are unable to compete with non EU traders who can charge as much as 20 per cent less for the same product, even though it is delivered to the same UK customers.
Trading Standards Authority Report Sellers to eBay
In excess of 200 non-EU sellers have been reported to eBay by the Trading Standards authorities because they are not displaying VAT on products. However, it is believed that this number is a mere fraction of the total that are breaching the rules. This is having an extremely detrimental effect on businesses in the UK. It has been further revealed by a number of chartered accountants in north london, working on behalf of their clients, that a significant number of companies who have stock held in warehouses in the UK but are technically based outside of Europe are also undercutting British companies because they are not paying VAT.
UK Tax Law and e-Commerce Law in Conflict
Nevertheless, e-commerce law states that VAT numbers must be displayed. They have to be accessible all of the time and they cannot be hidden or difficult to find. However, eBay is not required to enforce this regulation. They are only obligated to do so once they have been given notice that there is a problem. Thus, because Trading Standards have reported more than 200 sellers, eBay is now obligated to investigate the issue. The auction site has also said that they are making an effort to educate overseas sellers by providing them with a programme that outlines their VAT obligations in the UK.
The tax law in the UK states that the 20 per cent value added tax needs to be declared by sellers. However, HMRC have said that it is not a breach of tax law to hide a VAT amount so it does not have to be clearly visible to the buyer, thus they have no reason to take action because of the current situation. This leaves UK businesses in a tricky position and a lot have commented that until HMRC takes action more and more sole traders and small companies are going to be put out of business because of it. Nevertheless, HMRC have said that they are doing all they can to create a level playing field for all by making sure the tax system operates fairly and that deliberate non-compliance by overseas companies is tackled. The question for most UK businesses who trade on EBay is: how long will this take?
The news doesn’t make good reading for UK sellers, however, as foreign sellers have dominated online marketplaces in the UK over the past ten years or more. This is especially the case when it comes to the market for consumer electrical goods. Companies will be hoping that new legislation comes into place in the very near future whereby this sort of action cannot be taken. However, for now businesses will have to rely on trading standards to keep reporting the guilty parties to eBay and hope that eBay takes adequate steps to redress the imbalance. Indeed all companies can play their role by alerting trading standards as soon as they come across anyone that is breaching the rules by failing to display VAT figures.
Of course, very small traders (whether operating as a sole trader or as a limited company) are only obliged to charge VAT on goods sold in the UK once their annual turnover exceeds a certain threshold. This threshold for the 2015/2015 tax year is currently set at £81,000 for UK companies selling in the UK and is set at £70,000 for overseas companies selling online to UK buyers.