HMRC under fire as thousands of ‘bogus’ Chinese companies exploit lax rules to dodge VAT

HM Revenue & Customs (HMRC) has come under renewed scrutiny for what critics describe as a failure to clamp down on widespread tax evasion by thousands of Chinese “burner” companies.

These shell firms, often created and dissolved within months, are accused of exploiting lax UK company registration and VAT rules to flood online marketplaces such as Amazon, eBay, and Temu with cheap goods, all while avoiding VAT and import duty.

Industry sources warn that this chronic tax dodging is making it “impossible” for legitimate UK businesses to compete. Critics say that HMRC, which is responsible for collecting VAT and import duty, is not doing enough to prevent firms from gaming the system and leaving British taxpayers footing the bill.

Mounting evidence suggests that as many as 30,000 Chinese-owned companies have registered to UK addresses this year alone, frequently without the knowledge or involvement of the property’s legitimate occupants. In one example, a single director based in China set up 87 new businesses at various residential addresses across the country, ranging from Middlesbrough to Bath, Norwich, and Birmingham. Another case revealed that a flat in a student accommodation block in north London was used as the registered address for 54 companies, each with a different Chinese accountant as its sole director.

In Cardiff, HMRC sent tax bills amounting to over £500,000 to a single home address linked to a so-called “VAT handling” company that never filed anything other than dormant accounts and was struck off last July. Yet, as recently as last month, HMRC was still issuing demands for unpaid VAT and duty to that firm—one notice exceeded £220,000, implying more than £1 million worth of untaxed sales.

UK retailers say these scams amount to “industrial levels” of tax evasion, allowing fraudsters to slash their prices and squeeze out legitimate competitors. Richard Allen of Retailers Against VAT Abuse Schemes (Ravas) argues that it is harder to borrow a library book than to set up a company and obtain a VAT number in the UK. “HMRC allows VAT numbers to be set up with barely any compliance checks,” Allen said. “This has led to wholesale VAT fraud.”

The crux of the problem lies in toothless checks during the company formation and VAT registration process. After establishing a UK company on paper, fraudsters register for VAT—often without any meaningful scrutiny—enabling them to appear as local sellers on major e-commerce platforms. Once HMRC attempts to reclaim taxes owed, these burner companies vanish, only to pop up again under a different name.

While HMRC says it thoroughly scrutinises businesses and has transferred VAT liability to online marketplaces since 2021, critics counter that the sheer volume of questionable registrations highlights a glaring hole in enforcement. The reforms were meant to bring in an additional £1.8 billion per year by 2027, but insiders say the link between fake UK companies and marketplace VAT collection makes it exceedingly difficult to track down fraud and hold platforms accountable.

A recent National Audit Office investigation also cast doubt on the integrity of Britain’s company register, identifying numerous individuals listed as directors of thousands of firms. Some director names were fictional, referencing cartoon characters or famous historical and religious figures.

Companies House, responsible for the UK’s company register, said it takes fraud seriously and will soon introduce compulsory identity verification. These checks are hoped to provide greater assurance over who is actually running businesses, thwarting economic crime and shoring up Britain’s credibility as a trusted trading partner.

But until those reforms come into effect, UK retailers and taxpayers must reckon with a system that appears ripe for exploitation. Graham Barrow, a fraud specialist who advises financial institutions, said: “The system clearly isn’t working.” Without meaningful change, British businesses and the public purse will continue to lose out to phantom firms and their orchestrators abroad.