Government Targets VAT Dodgers as Tax Compliance Review Launched

The government has launched a review into how VAT is collected from businesses trading through online marketplaces, with ministers warning that high street businesses are being "frequently undercut by online-only sellers who dodge their tax obligations".^[1]

The review, announced on 23 June 2026 by HM Revenue & Customs^[1], seeks views on how current online marketplace rules can be extended to ensure all businesses comply with UK VAT rules. The revenue raised from improved compliance will be directed towards improvements to the business rates system for pubs, restaurants, hotels and other high street businesses.^[1]

The announcement forms part of a wider package of tax and customs reforms designed to "level the playing field" between traditional retailers and online competitors. Ministers described the measures as making the system "fairer, simpler and digital first".^[1]

Import Duty Changes Accelerated

Alongside the VAT review, the government confirmed it is accelerating plans to scrap customs duty relief on low value imports (LVIs) by six months, bringing the implementation date forward to October 2028.^[1]

The changes, originally announced at Budget 2025, will mean goods valued at £135 or less will be subject to customs import duties - closing a relief that has existed for small-value imports.^[1] The government stated the decision to accelerate delivery followed consultation with industry.^[1]

Ministers positioned the reforms as supporting "fairer competition between high street and online retailers", arguing that the current duty relief system disadvantages UK-based businesses competing with overseas sellers shipping low-value goods directly to UK consumers.^[1]

VAT Compliance Gap Under Scrutiny

The review into online marketplace VAT collection comes amid longstanding concerns about compliance gaps in e-commerce. While HMRC's announcement did not provide specific figures for the scale of VAT non-compliance in online marketplaces, the department framed the review as addressing businesses that "dodge their tax obligations".^[1]

Current rules require online marketplaces to collect and remit VAT in certain circumstances, but the government is now consulting on whether these rules should be extended. The review will examine how the existing framework operates and where gaps in compliance may exist.^[1]

The consultation approach suggests HMRC is seeking evidence from businesses and trade bodies about the practical operation of VAT collection through digital platforms before finalising any policy changes. No deadline for responses or implementation timeline was specified in the announcement.^[1]

High Street Focus and Business Rates Link

The government explicitly linked improved VAT collection to funding for business rates relief, stating that "revenue raised from this will go towards improvements to the business rates system for the high street".^[1]

Pubs, restaurants and hotels were specifically identified as businesses that form "the lifeblood of the high street" and would benefit from the reallocation of any additional tax revenue generated by closing compliance gaps.^[1]

This framing positions the VAT compliance measures not merely as enforcement action, but as part of a broader economic policy to support physical retail and hospitality businesses that face higher fixed costs than purely digital competitors.

UK Company Register Context

Across the UK company register, the scale of the retail and e-commerce sectors provides context for the government's focus on online marketplace compliance. According to CompanyPulse data^[2], there are currently 5,595,105 active companies on the UK register.^[2]

Economy-wide, the largest single sector by company count is real estate, with 443,430 companies registered under SIC code 68209 (Other letting and operating of own or leased real estate).^[2] Retail sale via mail order houses or via Internet (SIC 47910) accounts for 201,311 registered companies across the UK.^[2]

In the hospitality sector specifically referenced in the government announcement, 82,990 companies are registered under SIC code 56103 (Take-away food shops and mobile food stands) across the entire UK register.^[2] A further 74,436 companies operate in hairdressing and beauty treatment (SIC 96020), representing another significant component of high street trade.^[2]

These economy-wide totals illustrate the breadth of the UK business population potentially affected by changes to VAT enforcement and business rates policy, though the government's VAT review targets specifically those online marketplace sellers identified as non-compliant rather than the entire retail sector.

Wider Tax Reform Package

The VAT and customs reforms announced on 23 June 2026 also include plans to reform VAT on the sale of land, which the government stated would enable "affordable homes to be delivered quicker".^[1] No further detail on the land VAT reforms was provided in the announcement.

The package of measures reflects a policy approach that combines revenue protection - through closing compliance gaps - with economic development objectives around supporting high street businesses and housing delivery. Whether the VAT review will ultimately recommend legislative changes or enhanced enforcement of existing rules remains to be determined through the consultation process.