The Billion Pound VAT Scam Panorama

Now on BBC News, it's

time for Panorama.

Tonight on Panorama -

we set up our own company to expose

a billion pound tax scandal.

Hello, Bilton's Bargains -

cheap goods, no VAT!

We go undercover to show

how the fraud works.

The special, special way,

you don't need to have VAT.

We sell our fraudulent

goods on eBay and Amazon.

It's pretty shocking, isn't it,

that you can do it so easily

and so openly, so blatantly.

We ask, who is protecting

British taxpayers?

Trading Standards are like taking

a bow and arrow to fight with,

with tanks when they're taking

on huge global multi-billion pound

turnover businesses...

And what does the taxman

say when we tell him

we've broken the law?

It's something that

you should not have done.

I'll speak to you when the cameras

have stopped rolling about that.

If you're white van man,

today's a big day.

It's Cyber Monday.

Everyone's ordering

Christmas presents and they

all need delivering.

It's one of Amazon and

eBay's busiest days.

But as you click to buy,

you might be taking part in a fraud.

It's an online tax scam

that's costing the country more

than a billion pounds a year,

and putting British firms

out of business.

We've set up a British company,

Bilton's Bargains -

and we're going to join in the scam.

I'm going to use both

eBay and Amazon to sell

my illegal products.

What we're 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.

It's 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 don't,

so that's two reasons why

we need to crack down on it.

This is a scam that starts

at the other side of the world.

And that's where Bilton's 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.

I've come here to commit a crime.

I'm going to buy a load

of electronic goods,

ship them back to the United Kingdom

and sell them on Amazon.

But I'm 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

we've had online marketplaces

and we need to make sure

that our tax authorities

are able not just to deal with this

but are ahead of the curve

for whatever the next

scam down the line is,

and that's a real concern.

Criminals are dodging

two types of VAT.

They're evading VAT at the border

when it's imported.

That's up to 20% of

the value of the goods.

And then they're 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,

you're in the fraud territory.

And so the people who are abusing

e-commerce, they're fraudsters?

They're fraudsters.

VAT is complicated,

but what we're about to do isn't.

Bilton's 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.

I'm in Hong Kong and I'm just,

I'm doing the first stage

which is ringing the agents

and trying to line them up.

So, this is a guy, let's see

what he says for himself.

Hello?

Hi.

Is that Jonas?

Yes, yes.

Hi Jonas, it's Richard.

Oh, yes, hi.

I know you.

First, will our shipping agent help

us dodge import VAT?

You know what we're doing -

we're taking some stuff back

from Shenzhen, back to the UK.

Now, we are, we're

not VAT-registered.

Is that okay?

It's okay.

We can use special, special way.

Under your special method,

I can avoid all VAT?

Yes, yes.

Correct.

Right, that's good.

And so this is obviously something

that you're 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 couldn't

have been any clearer.

He said there are special methods -

you won't pay any VAT.

That's just a guy who's got

a business in China and part

of his business is ducking out

and avoiding VAT in the UK.

It's 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,

there's 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 Bilton's Bargains

checks out our goods.

The undercover reporter

buys 300 bluetooth speakers.

Let's be clear about

what we're 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,

they'll go to an Amazon

warehouse in the UK.

So, our fraudulent goods

will then be stored,

sold and delivered by Amazon.

But first, we have to

get our goods to them.

Time to catch up with Jonas,

our shipping agent.

He works for a company

in downtown Shenzhen.

Ready?

Jonas.

Oh, 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 don't 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 don't have VAT.

We've 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, Bilton's Bargains -

cheap goods, no VAT!

VAT crime is not just a

little scam by foreign traders,

it costs jobs in this country.

If you don't 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 it's sold,

they don't pay VAT that's

due on the sale either.

They are selling it 20% cheaper, um,

because they're not charging VAT.

Then, you know, it's impossible

for us to reach those prices.

That's why a lot of the...

our other UK competitors have

dropped away, you know, they,

they've 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 Roni's brother.

All I could see

was a big black void.

It was just like,

we're gonna go bust.

The hardest thing was making...

I mean making anybody redundant

is horrendous but when it's your

family and it's their main income,

and saying, "Look, I'm sorry but,

you know, we just can't

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 don't charge VAT.

But if you are sticking goods

in a warehouse in Amazon, and you're

Chinese, it appears that you can

just allow that to, that is allowed

to continue even when people know

it's happening that's not,

you know whatever the excuse,

that's 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.

They've known about what's 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 aren't

declaring their VAT numbers.

And these are things that global,

multi-billion pound companies

should be able to identify

and get a handle on.

Isn't 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.

They've lost half their staff,

half their budgets since 2009.

Trading Standards are like taking

a bow and arrow to fight with,

with tanks when they're 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.

We've raised this and you'll

see here, still today,

there's no VAT number on there.

So, they're 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 there's a dispute

about what that means for online

marketplaces like eBay and Amazon.

HMRC says it's 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 they're doing that for new

sellers coming onto their sites

and they're working through the

sellers that are already there.

I think for HMRC's point of view,

that - that is a welcome step.

If they didn't 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, we've had 400 cases

where we've had the market,

the sellers thrown off

the marketplace already.

So, will Amazon check

if we have a VAT number?

When we registered Bilton's 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 it's 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 Bilton's Bargains

was not asked for a VAT number

because it's a British company

and might be exempt.

But we know Amazon don't 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 didn't

want to give you one,

they didn't 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 HMRC's 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 Amazon's data.

We checked their top

Chinese sellers in Europe.

60% of them didn't 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 you're losing?

I think - I don't

think we are losing.

I think we are winning.

We're 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 system's

just not working.

I think it's indicative of the high

level of noncompliance that we know

exists in this sector,

which is why we've taken

the additional powers that we have

and why we're seeking further powers

to tackle that.

You've 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 don't think it's

an effective way to manage this

evasion, to rely on criminal

investigation and prosecution.

How many have you had?

We haven't prosecuted anyone,

and I think it's going to be very

difficult to prosecute people

because the sellers are overseas,

they're outside the UK.

It's 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.

Our speakers have arrived in the UK.

They cleared customs in Holland -

as the agent said they would -

hidden inside a larger delivery.

So, that's VAT of £312 evaded.

Well, it's pretty shocking,

isn't 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.

Even just 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 there's 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.

Bilton's Bargains paid £838

in fees for storage,

delivery and billing.

We didn't 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 "Bilton's Bargains

has been suspended".

Now, you might find one of Amazon's

main arguments surprising.

The company says it's 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 can't 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 there's nobody who's

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 that's 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.

It's time to come clean

with you, actually.

We smuggled some goods

into the country.

And we didn't pay VAT.

How do you feel about that?

It's something that

you should not have done.

And I'll 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 you're

determined to do so?

Of course, it's 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 we've 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 Bilton's 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 we're 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 that's the process

that they have shown us in action.

Didn't happen.

Um, I think that applies,

I think that's something that

they're applying

to overseas sellers.

We were a Chinese company.

Didn't happen, sir.

Well, we'll need to...

It's nonsense.

We'll need to look into that.

It's 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.

Our VAT-free speakers have

arrived at the office.

Packaged and delivered by Amazon.

Our phone cover from

eBay has arrived too.

We have successfully

evaded VAT - twice.

But what's 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 what's required",

and uses its "own detection methods

to block sellers" who don't 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, it's time for me

to pay for my crime,

because I've come

here today to confess.

So I want to give you this cheque,

if I may, for £514.74,

which is the money

that we've evaded.

Does it make you worried, sir,

about how you're 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 don't.

And if you look at the difference

that we think we can make to this,

it's clear that there's

more that we need to do.

We shipped goods from the other side

of the world and evaded tax.

It was easy.

Look, it's not rocket science.

If you don't think you're

going to be caught or inspected,

you might just not bother too much.

If you are buying something

from a company that's not paying

VAT, and aren't based in the UK,

you are effectively killing

a British company and the people

that work for that company.

The British taxman

didn't stop our crime.

And Amazon and eBay profited

from our illegal sales.

There's people in HMRC

who could've stopped it,

who haven't stopped it.

They should take responsibility

and you know, they're losing

the country billions of pounds.

We broke the law to show how easy

it is for crooks to steal more

than a billion a year.

Bilton's Bargains is

no longer trading -

but thousands of fraudsters

are cashing in this Christmas.