The UK is failing to catch international tax evaders selling products on online marketplaces like Temu – that was the finding of a Sunday Times investigation last weekend.
The international sellers are exploiting weaknesses in UK regulations to avoid paying VAT.
The investigation showed how thousands of Temu sellers are setting up UK companies then ‘stealing’ the VAT numbers of other, real UK companies to avoid the 20% tax.
In one example, tens of thousands of Chinese companies used a single address in Cardiff to register fake companies – leading to its owner receiving 11,000 tax bills.
Huge cost
This practice is depriving the government of tax revenue – but it’s also undercutting legitimate UK businesses who pay the proper rate of tax.
The true scale of the practice is uncertain but as the Sunday Times says “the findings raise serious questions about… HMRC’s ability to police tax evasion in the rapidly evolving, global retail industry.”
The story shines a light on how the UK state – especially HMRC and Companies House – is failing to keep up with the times when it comes to commerce and tax.
Serious concerns
It’s not a new problem. We used this newsletter just two weeks ago to highlight serious concerns raised by MPs around HMRC’s tax evasion investigations.
MPs warned it is “too easy to register companies fraudulently”; and that HMRC is not properly investigating this.
The story in the Times shows just how easy it is to evade tax through fake company registrations.
This should be a wake up call for the government – and convince them to make HMRC and Companies House fit for purpose for the 21st century.
The government should invest more in HMRC to tackle fake companies and tax abuse.