The UK tax dept is clamping down on tax dodging e-traders by hunting them down using a ‘web robot’.

The £250,000 robot, which was launched in March, is an advanced search engine that targets high-volume traders, such as those that sell goods on eBay, that fail to register for VAT.

HM Revenue & Customs (HMRC) expects the device to rake in an extra £1m a year in VAT and to force an extra 20 businesses to register for the tax.

According to a report by the National Audit Office, the Revenue collected more than £1bn in VAT from e-commerce sales in the 2005-06 tax year. This is expected to rocket by 2010 when the level of sales are expected to hit £60bn.

The number of people making a second income by trading on websites such as eBay has also soared. It is believed nearly 70,000 people earn a quarter of their living by trading on the website. However, a large percentage of them don’t declare their earnings to the taxman.

Traders of second-hand goods only have to account for VAT on profits, but if they fail to register or keep records, then the taxman could charge them VAT on the full value of the goods.

Sir John Bourn, head of the NAO, said: ‘I find it encouraging that HMRC is well positioned to manage the current risks to VAT from electronic commerce.

‘With internet sales set to mushroom in the next few years, the department faces a challenge to ensure it stays ahead of the game. Some businesses are inventive at side-stepping VAT, and the department must be equally innovative in guaranteeing the exchequer gets the revenue it is due.’

Posted: 05|26|06 at 3:07 pm. Filed under: UK News.