HMRC has only issued 80 data requests to platforms for information about online sellers it suspects of evading UK VAT in the past year.
Previous years have seen 2,684 data requests issued to online retail platforms such as eBay and Amazon investigating tax evasion.
The powers given to HMRC to investigate VAT-evading sellers were announced at the government’s autumn budget in 2017.
In 2015/16, it was estimated that online VAT fraud and error cost between £1bn-£1.5bn in lost VAT revenue.
According to UKY Hacker Young, the decision to stop investigating these sellers will negatively affect retailers in the UK.
Sean Glancy, VAT partner UKY’s London office, said: “HMRC’s decision to not investigate overseas online sellers risks allowing them to use tax evasion to undercut UK retailers with relative impunity.
“Online marketplaces need to be a level playing field for all sellers and right now, HMRC is allowing sellers overseas to have an unfair advantage.”
He added: “It’s clear that supporting the rollout of furlough has been a vitally important job for HMRC over the last year and ensuring businesses aren’t beset with red tape, but that can’t come at the cost of allowing tax evasion to run out of control.”