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The UK has been losing tens of millions of pounds in VAT avoidance and evasion as a growing number of non-EU sellers increasingly dominate sales of popular gifts on Amazon and eBay. Both firms believe they have no obligation to police VAT compliance by sellers.

All overseas businesses selling on eBay and Amazon must apply VAT on their UK sales from the moment they start selling to customers in Britain, regardless of how low their turnover is in the UK.

VAT can be avoided only if items are sold from outside the EU, are genuinely low-value and are imported in small packages already addressed to individual consumers.

Brussels has warned of a huge rise in goods shipped with value under-declared.

“There has been a huge increase in this trade which is very difficult to control; the system is so complicated it’s open to abuse,” says a senior Brussels source.