Its one of amazon and ebays busiest days. But as you click to buy, you might be taking part in a fraud. Its an online tax scam thats costing the country more than a billion pounds a year, and putting british firms out of business. Weve set up a British Company, biltons bargains and were going tojoin in the scam. Im going to use both ebay and amazon to sell my illegal products. What were looking at here is evasion of vat by overseas sellers who sell to uk consumers online and the rate of evasion by those retailers is quite high. Its between £1 billion and £1. 5 billion a year in lost vat to the exchequer. But it also undercuts legitimate traders who are complying with their Tax Obligations but who find it difficult to compete with those who dont, so thats two reasons why we need to crack down on it. This is a scam that starts at the other side of the world. And thats where biltons bargains has come to buy its stock. This is hong kong. These ships are packed with the things we all buy. When most of this stuff arrives in europe, tax has to be paid, vat, which helps pay for our public services. But thousands of traders are evading the tax. Ive come here to commit a crime. Im going to buy a load of electronic goods, ship them back to the United Kingdom and sell them on amazon. But im not going to pay the vat to the tax man. Criminals have been getting away with this fraud for years. Well, look, we know that weve had Online Marketplaces and we need to make sure that our tax authorities are able notjust to deal with this but are ahead of the curve for whatever the next scam down the line is, and thats a real concern. Criminals are dodging two types of vat. Theyre evading vat at the border when its imported. Thats up to 20 of the value of the goods. And then theyre not charging vat when they sell the goods to customers. There is two key moments where vat stops working so well from an evasion and fraud perspective. From the moment you stop complying with the law, youre in the fraud territory. And so the people who are abusing e commerce, theyre fraudsters . Theyre fraudsters. Vat is complicated, but what were about to do isnt. Biltons bargains is going to buy goods here, ship them back to the uk without paying vat and then sell them online. So, for this plan to work, we need a shipping agent in china to help us get the goods back to the uk. Im in hong kong and im just, im doing the first stage which is ringing the agents and trying to line them up. So, this is a guy, lets see what he says for himself. Hello . Hi. Is that jonas . Yes, yes. Hijonas, its richard. Oh, yes, hi. I know you. First, will our shipping agent help us dodge import vat . You know what were doing were taking some stuff back from shenzhen, back to the uk. Now, we are, were not vat registered. Is that okay . Its okay. We can use special, special way. Under your special method, i can avoid all vat . Yes, yes. Correct. Right, thats good. And so this is obviously something that youre used to doing then, jonas, you seem very confident about it . Yeah, yes. We arrange to meet the agent face to face in a couple of days. I mean he, he couldnt have been any clearer. He said there are special methods you wont pay any vat. Thats just a guy whos got a business in china and part of his business is ducking out and avoiding vat in the uk. Its extraordinary to hear that. So, now we need something to sell. Shenzhen in Southern China is the heart of the Online Electronics industry. If you buy a hard drive or a charger on the internet, theres a good chance it comes from here. This is one of the largest Shopping Centres in the world for electronic goods. There are thousands of products to choose from. So, next stop is the factory. Our rep from biltons bargains checks out our goods. The undercover reporter buys 300 bluetooth speakers. Lets be clear about what were about to do. We plan to smuggle these speakers to the uk without paying vat. Welcome to the glamourous world of online retail. If we get away with it, theyll go to an Amazon Warehouse in the uk. So, ourfraudulent goods will then be stored, sold and delivered by amazon. But first, we have to get our goods to them. Time to catch up withjonas, our shipping agent. He works for a company in downtown shenzhen. Ready . Jonas. 0h, jonas, nice to meet you. Hi, jessica, nice to meet you. Great. Jonas recommends a route through holland with our speakers hidden inside a bigger order. This is his special way. We use third Party Country like we ship to netherlands first to do the fiscal clearance to avoid vat and duty, then deliver to uk. The special, special way, you dont need to have vat. Actually, my customer have been three years use this way but nothing happen. Actually, there are so many seller in china, sell to us, uk, amazon shipment, business they also dont have vat. Weve just negotiated a way of breaking the law getting our goods to amazon without paying vat. Bye, bye. Thank you so much. Thanks very much. Bye. His Company Later told us that it was illegal to secretly film in china. They declined to comment further. Hello, biltons bargains cheap goods, no vat vat crime is notjust a little scam by foreign traders, it costs jobs in this country. If you dont pay vat, you can sell the goods cheaper. And uk traders, who are paying their taxes, cannot compete. People like neven and roni. They were top Online Sellers until fraudulent traders started to undercut them. These guys are bringing stock into the uk, not paying vat on it and when its sold, they dont pay vat thats due on the sale either. They are selling it 20 cheaper, um, because theyre not charging vat. Then, you know, its impossible for us to reach those prices. Thats why a lot of the. Our other uk competitors have dropped away, you know, they, theyve given up and giving up is not an option for us. Four years ago, they saw a 60 drop in their sales and almost went bust. They only survived by laying off all their staff, including ronis brother. All i could see was a big black void. It was just like, were gonna go bust. The hardest thing was making. I mean making anybody redundant is horrendous but when its your family and its their main income, and saying, look, im sorry but, you know, we just cant afford you anymore so that was, i think that was the hardest thing for me. Pleased to meet you, rich. Are you well . So, talk me through your background then so you. I was basically forced out of business by companies that were avoiding vat. Richard allen used to be an online seller until his company went bust. Now he campaigns to stop vat fraud. If you are running a shop or a mail order business in the uk you are obligated by law to pay vat and you will be most likely caught if you dont charge vat. But if you are sticking goods in a warehouse in amazon, and youre chinese, it appears that you can just allow that to, that is allowed to continue even when people know its happening thats not, you know whatever the excuse, thats not an acceptable situation. Amazon and ebay say vat fraud is bad for business and they take it very seriously. They say they want fair play for all sellers, so they work closely with hmrc, sharing information about foreign sellers and blocking them when fraud is suspected. But amazon and ebay profit from these illegal traders because they charge them fees to use their services. Theyve known about whats been happening for years. Ebay were told in 2009, 2011, and a number of times since. Amazon have been aware since at least 2015, and we still see blatant offences, businesses that arent declaring their vat numbers. And these are things that global, multi billion pound companies should be able to identify and get a handle on. Isnt this easily solved . You and your trading standards colleagues just get out there and catch all the bad guys . Trading Standards Services have, you know, too little resources. Theyve lost half their staff, half their budgets since 2009. Trading standards are like taking a bow and arrow to fight with, with tanks when theyre taking huge global multi billion pound turnover businesses. Trading standards think amazon and ebay could reduce the fraud by one simple measure making foreign sellers who hold stock in the uk display valid vat numbers. So, here you find examples of sellers that are, where the business has no business details whatsoever, including a lack of vat number. Weve raised this and youll see here, still today, theres no vat number on there. So, theyre just openly breaking the legislation . Blatantly breaking the legislation. This company has now finally got a vat number. The law says vat numbers should be accessible but theres a dispute about what that means for Online Marketplaces like ebay and amazon. Hmrc says its not a legal requirement for sellers to display a vat number. But the taxman says both amazon and ebay have agreed to make sure that those numbers are displayed anyway. I understand that amazon and ebay do now have it as part of their processes, to ask for a vat number. And they check the validity of that number. And, uh, require that number to be shown on their website. I think theyre doing that for new sellers coming onto their sites and theyre working through the sellers that are already there. I think for hmrcs point of view, that that is a welcome step. If they didnt have a vat number displayed, what would your instinct be, whether they had one or not . That makes them very high risk from our point of view and we do risk assess all of those cases and we do investigate and, for example, weve had 400 cases where weve had the market, the sellers thrown off the marketplace already. So, will amazon check if we have a vat number . When we registered biltons bargains we were asked for a vat number but the box said optional. We were still allowed to register after leaving it blank. Amazon says its committed to helping hmrc identify the small number of bad actors who are not vat compliant. And that sellers agree to pay taxes when they sign the terms and conditions. Amazon says biltons bargains was not asked for a vat number because its a British Company and might be exempt. But we know amazon dont always make Foreign Companies provide a vat number either. You only have to go on amazon or ebay to see how widespread the problem is. There are thousands of foreign traders selling goods from within the uk. And many do not have vat numbers. I also did some Mystery Shopping in preparation for our hearing on this, and it was just ridiculously easy to buy goods and ask for a vat certificate, and only to find that they didnt want to give you one, they didnt have one, they were trying to fob you off. In the end, i was offered a 20 discount on one item to try and buy me off. Ebay and amazon say the level of vat fraud is lower than hmrcs estimate of more than a billion pounds a year. They also say they try to prevent fraud by offering information and training to sellers about the vat rules. But we were able to dig deeper into amazons data. We checked their top chinese sellers in europe. 60 of them didnt display a valid vat number. If 60 of chinese sellers, the top chinese sellers on amazon, are not listing a vat number, how does that make you feel . Does that make you feel a bit like youre losing . I think i dont think we are losing. I think we are winning. Were already having a big impact. For example, in 2015 only 700 overseas Online Sellers registered for vat in the uk. In 2016, that went up to over 8000, but 60 of the top sellers are not bothering with vat. It means the systems just not working. I think its indicative of the high level of noncompliance that we know exists in this sector, which is why weve taken the additional powers that we have and why were seeking further powers to tackle that. Youve had these powers for 11 months. How many prosecutions have you made . We think prosecution is a tool that we can use if we can get our hands on criminals, but actually we dont think its an effective way to manage this evasion, to rely on criminal investigation and prosecution. How many have you had . We havent prosecuted anyone, and i think its going to be very difficult to prosecute people because the sellers are overseas, theyre outside the uk. Its very difficult to reach them, very difficult to prove things to a criminal standard. What we need to do is change the behaviour, get the tax and make people comply going forward. Remember our crime it was all about whether we could get our goods into the uk without paying import vat. Well, now we know. 0ur speakers have arrived in the uk. They cleared customs in holland as the agent said they would hidden inside a larger delivery. So, thats vat of £312 evaded. Well, its pretty shocking, isnt it, that you can do it so easily and so openly, so blatantly, and we need to make sure that there are systems in place to stop that happening. Evenjust to make it a bit more difficult for people to scam it, would stem some of the flow, and that would be a start. But theres a lot more that needs to be done. And amazon stored our fraudulently imported goods. This is where our speakers ended up. So, our goods have arrived with amazon. We bought them in china, shipped them to the uk without paying vat. We got away with the crime. And amazon profited from it. Biltons bargains paid £838 in fees for storage, delivery and billing. We didnt want other people to get caught out by our scam so i bought all 300 speakers. Amazon says it cannot know whether import vat has been paid, and that no vat fraud took place in relation to our sales. It has multiple methods for checking the legitimacy of seller accounts, and biltons bargains has been suspended. Now, you might find one of amazons main arguments surprising. The company says its not a major part of the supply chain for vat purposes. Even though amazon stores, sells and delivers the goods. I bought things on amazon that are invoiced by amazon, delivered by amazon, packed by amazon, that involve fraudulent transactions. So i really cant see how they can distance themselves from it. And it should be made a cost of their business collecting this tax. And that might be about to happen. The European Union wants to make Online Marketplaces collect vat, in the same way that shops do. So, one of the issues that we have right now, is that theres nobody whos actually taking responsibility for ensuring that the system works. So we have to make those warehouses, and particularly the online retailers the online websites take legal responsibility for collecting the vat and passing it on to the country where the customer is located. That at the moment is not the case, and thats one of the changes that could happen as early as by the end of this year. But i did break the law, and i should confess. Its time to come clean with you, actually. We smuggled some goods into the country. And we didnt pay vat. How do you feel about that . Its something that you should not have done. And ill speak to you when the cameras have stopped rolling about that. But, you know, do i believe it is completely impossible to smuggle goods into the uk without paying duties if youre determined to do so . Of course, its not. It, like any other part of the tax system, there is leakage around it. So, what about ebay . Well, they say that 98 of sales involving foreign sellers now have a valid vat number. And in september, this is what they told parliament. For foreign sellers, who are the primary focus of this issue, we require that they display a valid vat number, which we check through the vies system. And we make sure that sellers display that, and weve also asked them to put that on their listing. We wanted to check if that was true. So, a week later, we committed another crime. This time we imported 270 mobile phone cases for sale on ebay. To really test the system, we moved biltons bargains hq to china. On ebay, we registered as a foreign trader. Once again, our goods sailed through customs. Import vat of £203 evaded. Now ebay have told parliament that they check the vat numbers. But we listed our mobile phones cases up on the ebay site without a vat number. It was easy to break the law. We sold one phone cover and bought it back ourselves. Ebay then limited our account for 30 days, because were a new seller they say this restriction helps reduce all fraud. Ebay said the block was very largely effective. And it meant that our account was unable to sell. 270 iphone covers. But you told me that you were confident that ebay check for a vat number before they deal with a new business. We were a new business, and nobody asked us anything. Quite the opposite. Happy to deal with us. Well, that is the evidence that they have given, and thats the process that they have shown us in action. Didnt happen. Um, i think that applies, i think thats something that theyre applying to overseas sellers. We were a chinese company. Didnt happen, sir. Well, well need to. Its nonsense. Well need to look into that. Its easy to break the rules. Well, as i say, if they helped you break the law, then that is clearly something we could do something about. 0ur vat Free Speakers have arrived at the office. Packaged and delivered by amazon. Our phone coverfrom ebay has arrived too. We have successfully evaded vat twice. But whats remarkable about this crime is ebay and amazon helped us sell our products and profited from our dodgy sales. Ebay says it has taken a strong stance on vat non compliance, and is determined to stamp down hard on it. It says it goes above and beyond whats required, and uses its own detection methods to block sellers who dont comply. Amazon say they now have vat numbers that cover 95 of sales from foreign sellers who use an Amazon Warehouse. It also says. Tens of thousands of british businesses generate billions of pounds in revenue every year by selling on their marketplace. We cheated the taxman to highlight the flaws in the system. Last week, the government announced it would tighten the law. Now, Online Marketplaces like ebay and amazon will be forced to make sellers display a vat number. Now, its time for me to pay for my crime, because ive come here today to confess. So i want to give you this cheque, if i may, for £514. 74, which is the money that weve evaded. Does it make you worried, sir, about how youre going to get the other billion if we could break the law so easily . It certainly is a big challenge for us to get that. Do i believe that we have got the responses in place that is going to get all of that taxes being evaded . No, no i dont. And if you look at the difference that we think we can make to this, its clear that theres mor