How VAT avoidance is hurting UK SMEs

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By Julius Oliveti, Founder, Lupostore.com

I started trading online seriously in 2000. A lot has changed since then, but one thing that remains the same is the way people use online shopping and the benefits it offers – both to customers and businesses. There’s no question that online retailing has fundamentally changed the way that people shop and opened up the industry to swathes of entrepreneurs. Striking out on your own like this can be a great move and if you’re sensible and you learn from your mistakes, you can absolutely be successful in the world of online retail.

This means that competition is fierce, which is where mammoth companies like Amazon and eBay come in. It can be difficult for a small business to drive substantial traffic to their standalone website, but having access to the audience that Amazon and eBay offer makes it so much easier to get your business off the ground.

However, platforms like these aren’t without their flaws. One of the areas that’s impacted heavily on my business (and many others) is overseas traders using these marketplaces to avoid UK VAT.

Other SME owners may know what I’m talking about – foreign sellers trade on marketplaces like Amazon without being VAT registered, meaning they can offer the same products as UK-based businesses at far lower prices. This means British businesses lose out – personally, this practice has seen me lose about £500k in profits over the last couple of years.

It’s an issue that’s gone unnoticed until recently – Phillip Hammond announced measures to combat this in the Autumn Budget. Whether they go far enough remains to be seen, but acknowledging that this is an issue is a step in the right direction.

Ultimately, all businesses deserve to trade on a level playing field. It’s vital that the government steps in with appropriate measures to combat this, but the marketplaces have to do their share too. From what I’ve seen, there really aren’t many robust measures in place to stop this practice. I’d like more done to ensure that foreign businesses are meeting their VAT obligations and take steps to clamp down on those that try to get out of paying.

Small businesses trade on the margins – losses can quickly add up. That’s why anything that helps me save money is a welcome addition, particularly in the face of sales being lost to foreign companies that undercut UK companies on price. For example, I do a lot of business through Amazon and eBay – I know the benefits they offer. I use a foreign exchange brokerage called Currencies Direct to help me manage payments I receive from overseas and I’ve saved about £4,000 a year by doing this. I’ve also invested that money back into the community by sponsoring a local children’s football team. Solutions like this have been a real help in managing my cashflow and if I hadn’t taken steps like these I’d probably have gone under when losses to VAT dodgers were at their heaviest.

Small business owners don’t always expect an easy ride, but helping us trade on a level playing field should be something that’s achievable. We need lawmakers and internet companies to step up to the plate and help make this happen.

lupostore.co.uk