Billions in Additional Tax—At the Flick of a Switch

The UK Government is currently reviewing legislation surrounding Online Marketplaces (OMPs) and their obligation to collect VAT. Under current rules introduced in January 2021, OMPs are required to collect VAT on sales made by overseas sellers into the UK. However, as RAVAS has consistently warned, a critical loophole has enabled overseas sellers to bypass this system by establishing shell companies based in the UK—thereby avoiding VAT collection by OMPs altogether.

RAVAS has also seen evidence that that some legitimate UK sellers are deliberately keeping their sales below the VAT threshold. Once they approach the threshold, they transfer their product listings—complete with reviews, rankings, and sales history—to new companies, evading VAT responsibilities. This technique, which we have dubbed ASIN Phoenix Fraud, is yet another example of Phoenixing/disaggregation, a problem as old as the VAT system that has continued into the e-commerce age.

A Simple Fix to End Widespread Abuse

The simplest and most effective solution is for the UK to require OMPs to charge VAT on "all" sales, including those made by sellers not registered for VAT. This could be implemented easily, as OMPs already collect VAT on sales from overseas sellers. Extending that function universally would be possible—virtually "at the flick of a switch"—and would immediately close off avenues for fraud and tax evasion.

A Proven Model

There's strong precedent for this model in the United States. In the 2018 South Dakota v. Wayfair decision, the Supreme Court upheld the authority of states to require remote sellers to collect and remit sales tax, even if they had no physical presence there. Initially, these sellers were pursued directly, but thanks to advocacy efforts—particularly from the Online Merchants Guild led by tax attorney Paul Rafelson—U.S. laws were updated. OMPs began collecting sales tax on behalf of remote sellers, streamlining enforcement and compliance.

The Revenue Potential for the UK

The financial impact of such reforms could be enormous. According to the Rockefeller Institute of Government, U.S. marketplace facilitators collected over $30 billion in state and local sales taxes in 2022 alone, with conservative estimates suggesting a rise to $35–$45 billion in 2023–24. In California, marketplace facilitators collected over $5.4 billion in just one fiscal year (2021–22). Given that the UK is the third-largest ecommerce market globally—behind only China and the United States—similar reforms could unlock billions in untapped VAT revenue.

For a deeper dive, listen to an interview with Paul Rafelson HERE