The government will place a new tax on big tech companies like Apple, Google, eBay, and Amazon while also making them pick up the bill for sellers not charging the full amount of VAT.
Chancellor Philip Hammond announced the new measures in Wednesday's Budget, saying the government had found a new way to target the overseas-based companies by going after their British royalties, stored in offshore accounts.
"From April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales when those royalties are paid to a low-tax jurisdiction," Hammond said. "Even if they do not fall to be taxed in the UK under our current rules."
He said it would raise more than £200 million a year, adding, "This does not solve the problem, but it does send a signal of our determination."
The companies will also now be required to cough up the VAT for products bought outside the EU, with the government now going after so-called VAT fraud.
"Following representations from a number of my honourable friends, we are also taking further action to address online VAT fraud, which costs the taxpayer £1.2 billion per year," he said. "By making all online marketplaces jointly liable for VAT."
Crackdown on online VAT fraud. Now likes of Amazon and eBay will be held jointly liable as I have long argued. Grea… https://t.co/ezeUpjpcq0
In April, the National Audit Office revealed the government was losing more than £1 billion a year in unpaid VAT on products bought outside the EU on websites like Amazon and eBay.
The current VAT of 20% must be collected by retailers on all products brought into the UK and given to the British tax office.
According to the NAO, sellers were bringing in products, often from China, and avoiding paying the full amount of tax.
eBay vice-president Joe Billante pushed back against accusations the companies were profiting from this VAT evasion, telling parliament's public accounts committee: “We don’t want any of these sellers on our platform.
"If we are notified, we take action.”
In a statement last month, Amazon said it was reviewing the report and supported efforts to ensure sellers across all marketplaces were VAT-compliant, while an eBay spokesperson said it was going "above and beyond" HMRC's requirements to provide a "fair marketplace for all our buyers and sellers".
In the changes announced on Wednesday, all companies selling products in Britain will need to show valid VAT numbers on the seller's website.