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The prices of products on Amazon and eBay will rise as a result of the closing of a VAT loophole which came into effect on 1 January.

Ecommerce platforms now need to account for VAT paid on products on their platforms by third-party sellers, deducting the tax at source.  

Fraudulent practices

The change was made after thousands of sellers were evading tax by using shell companies and fake VAT numbers. Many of the companies doing this were from China.

Analysis reported in the Times found that prices of many goods have gone up almost overnight.

No choice

UK retailer Julius Oliveti said that in product ranges where Chinese sellers dominated prices have increased by roughly 20%.

“I’ve never seen anything like this. It is pretty hard to avoid the conclusion that they were not paying any VAT before but suddenly they don’t have any choice so they’re putting up their prices,” he said.

Pursue tax evaders

A report by the Commons public accounts committee in 2019 estimated that HMRC was losing around £1bn to VAT fraud.

Richard Allen, of the group Retailers Against VAT Schemes, called on HMRC to pursue companies that had evaded tax before the tightening of the rules.

“They should not be allowed to continue to trade until they have accounted for it,” he said.