It’s been a long time coming. But if you’re trading online you really need to get your VAT house in order.

HM Revenue and Customs has recently been urged to show more urgency over VAT fraud and tax losses from online businesses. Losses from 2010 alone total £32bn in uncollected tax including £9.6bn or so in VAT. That’s 10% of the VAT that should have been collected and a third of the overall tax gap. Ouch.

HMRC’s big plans for key data and new technology

HMRC responded by saying it is already using ‘key data and new technology’ to tackle the threat and has so far prevented around £579m in fraudulent VAT repayments. But it doesn’t check every VAT return in real-time and there isn’t a plan to cover the emerging trend of online trading VAT losses… yet.

MP gets involved

The Labour MP Margaret Hodge said that while HMRC has “helped to ensure legislative change to close existing VAT loopholes and launched a series of initiatives”, its overall reaction hasn’t been anywhere near as urgent as it needs to be. Others believe HMRC need to devote a lot more resources to profiling VAT returns for enhanced risk.

What about the future?

Last year HMRC launched a campaign to persuade online traders to put their tax affairs on a proper footing. They are also chasing people they think owe tax, and they have simplified their guidelines for online trade. As for the future, the government has committed a billion pounds to the cause and HMRC has promised to generate more than £24bn by the 2015/16 tax year and get much tougher on online businesses.