Source · Select Committees · Public Accounts Committee
Recommendation 8
8
Accepted in Part
HMRC significantly underestimated additional tax revenue from online marketplace VAT liability legislation.
Recommendation
In January 2021 government introduced legislation making online marketplaces liable for VAT from overseas sellers, resulting in £1.5 billion of additional tax a year. This is five times greater than HMRC estimated at the time.15 We asked HMRC why this was, and it explained that the volume of online sales had increased but also that it had imperfect information at the time.16 However, HMRC conceded that it had not sought to break down which of these factors contributed most to the difference.17 HMRC also told us it thinks it has a good idea of how much non–compliance there is in the online retail sector.18
Government Response Summary
HMRC will analyze the difference between original and current costings of the 2021 Online Marketplace Liability policy, and update its estimate of tax lost from VAT non-compliance, providing findings when sufficiently robust, with an update in September 2025 and a final report in April 2026; however, they may not be able to identify all the specific elements requested.
Government Response
Accepted in Part
HM Government
Accepted in Part
1a. PAC recommendation: HMRC should assess why the additional tax it now collects from online marketplaces is five times greater than it predicted. In particular, how much is due to underestimating the scale of evasion, how much is due to higher sales, and how much is due to policy change. Using this assessment, it should write to the Committee within six months with its findings, including a revision of its estimate of the amount of tax lost from VAT evasion by online retailers on online marketplaces, and any wider implications for its estimates of the tax gap. 1.1 The government agrees with the Committee’s recommendation. Target implementation date: April 2026 1.2 HMRC is already progressing work on analysing the difference between the original and current costings of the 2021 Online Marketplace Liability policy. It will provide as many of the specific elements as possible; however, it may not be able to identify the specific elements 44 the Committee has requested. HMRC will provide its findings to the Committee when these are sufficiently robust (and will provide an update in September 2025). 1.3 HMRC is also updating its estimate of tax lost from VAT non-compliance by overseas sellers on online marketplaces. HMRC reiterates that as explained to NAO during their review, the estimates referenced in the recommendation are generated for internal planning purposes and include elements of expert judgement, data and intelligence and as such should not be considered to be an official, statistically-based report on tax losses. 1.4 HMRC will review any implications for the tax gap. 1.5 To ensure these new rules continue to operate effectively, HMRC will continue to work with online marketplaces and carry out compliance activity to ensure the legislation is being applied correctly.