HMRC Failed to Stop British Man From Being Bombarded by Tax Demands for 11,000 Chinese Firms

MPs have lambasted UK tax authorities for failing to stop 11,000 Chinese firms from using a man’s flat without his permission, as part of a scheme to avoid paying over £750,000 in VAT.

The scam followed a change in the law by the last Conservative Government which asked websites running market places like Amazon, to collect the VAT from overseas registered firms. However, the law still allowed firms registered in the UK to be exempt from this.

Dylan Davies reported the issue to HMRC in November 2022 after he received sack-fulls of tax demands and was then threatened with debt collectors at his Cardiff flat. The Revenue department ignored him, so he went to the BBC who published his plight in April 2023.

Now MPs on the Public Accounts Committee have criticised HMRC for its failure to act, despite promising to do so at an earlier hearing in 2023.

At the time, Sir Jim Harra, chief executive of HMRC, promised MPs “HMRC had acted to prevent any further letters and companies being registered to Mr. Davies’ address.”

Now nearly two years later Mr Davies is still receiving tax demands for these Chinese importers – the latest being in October and November last year totalling £224,000 in unpaid tax.

This time the HMRC has told MPs that it does not routinely check addresses when businesses register for VAT, but says it has confidence that its risk–based checks, combined with due diligence rules for online marketplaces, are working well.

The report says: “Despite this, HMRC seems unable to stop businesses registering for VAT using incorrect addresses, illustrated  by the case of an individual in Cardiff who continues to receive letters seeking unpaid tax from HMRC addressed to overseas companies incorrectly registered at his residential address – despite this Committee pressing  the issue for over a year. “

It adds: “Moreover, HMRC does not appear to be actively exploring options used internationally to tighten wider controls around VAT.”

Evidence from the retailers Against VAT Abuse, Schemes a campaign group formed by UK  businesses, has told MPs that HMRC and Companies House are being extremely lax about preventing fraud. It estimates that the 11,000 Chinese firms have avoided VAT on over £1million of goods traded in on line market places.

It says “More ID is required to withdraw a library book than is required to register a company and obtain a VAT number in the UK. It is far too easy for Bad Actors to obtain both a VAT number and UK incorporation.”

The MPs estimate that VAT evasion is much higher than the £5.5 billion recorded by HMRC and accuse the department of a “lack of curiousity“ in pursuing evasion. They say since the law was changed to make market place sites collect VAT by the last government  HMRC though it would only raise an additional £300,000. It raised over £1.5 billion.

Sir Geoffrey Clifton-Brown MP, Conservative Chair of the Committee, said: “It is of deep concern that the many billions in tax rightfully meant for the public purse could just be the tip of the iceberg. Not only that, but our own tax authority has not sufficiently curious with a view to accurately diagnosing the problem. 

“Though we acknowledge the inherent difficulty of the issue, it is clear that more must be done to clamp down on fraud and root out the bad actors who are taking advantage of loopholes in the current system. It is unfair on those who abide by the rules to be undercut by those that are evading their obligations. There has to be a real willingness by those in charge of Companies House to effectively use the powers they’ve been given.”

An HMRC spokesperson said: “The UK has one of the lowest reported tax gaps in the world, and we’re prioritising closing it further. Our risk-based approach to tackling evasion and other forms of non-compliance collected and protected £41.8 billion in the last 12 months – money that goes toward public investments and services that deliver the Prime Minister’s Plan for Change.”