VAT on e-commerce : HM Revenue & Customs

The value of internet sales (known as e-commerce) in the UK has more than trebled between 2002 and 2004 to GBP 18.1 billion, with a further surge around Christmas 2005, and this level is expected to rise to nearly GBP 60 billion a year by 2010.

It is estimated that in 2005-06, HM Revenue & Customs collected over GBP 1 billion in VAT on e-commerce goods and services.

HM Revenue & Customs does not separately identify the exact amount of VAT collected from e-commerce because businesses are required to calculate and pay over VAT for their entire taxable activities, which include both traditional forms of business and e-commerce.

In light of these developments, this NAO report examines the implications of the growth in e-commerce for VAT collection and the approach of HM Revenue and Customs to VAT collection.

The report finds that HM Revenue and Customs has been alert to emerging areas of risk, such as the failure of e-commerce businesses to register for VAT and the non-payment or underpayment of import VAT on goods ordered over the internet from outside the EU. The report supports the assessment by HM Revenue and Customs that the overall risk to VAT revenue from on-line shopping is currently low, but as activity increases in this fast changing environment, it will be important that the Department builds on its work to keep abreast of possible changes in the patterns and levels of risk to VAT.