Amazon was accused last night of profiteering from a multi-billion-pound VAT fraud that is pushing British businesses to the wall.

MPs said the online retailer was ‘turning a blind eye’ to organised criminals from China and elsewhere who sell their goods cheaply on internet auction sites – but don’t register to pay VAT.

The scam takes up to £1.5billion a year from Treasury coffers and lets the sellers undercut law-abiding British traders, forcing them to fold or lay staff off.

Amazon has been accused last night of profiteering from a multi-billion-pound VAT fraud that is pushing British businesses to the wall

Yesterday, MPs on the Commons public accounts committee accused internet marketplaces Amazon and eBay of not doing enough to root out foreign firms that fail to pay tax.

They also said that because online retailers take a commission from the total that tax-evading traders make, they receive more money from them than if the 20 per cent VAT was paid – letting them ‘profiteer’ from the fraud.

The MPs criticised Amazon for letting foreign traders store goods in its warehouses even if they do not have a valid VAT number.

Labour MP Caroline Flint said: ‘The by-product of both Amazon and eBay and other online marketplaces is that you are profiting from the evading of tax by these overseas sellers.

‘We are talking about billions of pounds of VAT being lost to HMRC and therefore being lost to the UK, and the putting out of business legitimate firms that are playing by the rules.’

Labour's Caroline Flint was among the MPs criticised Amazon for letting foreign traders store goods in its warehouses even if they do not have a valid VAT number

Registering for VAT and paying it is the responsibility of the seller – not Amazon, which insists it is just providing a marketplace.

Foreign firms selling on internet auction sites should register with HMRC and obtain a VAT number. Typically, the VAT would be added to the cost of the product, making it more expensive to shoppers.

But many don’t bother, meaning they can undercut UK sellers, while the websites don’t intervene to stop from trading.

Steve Dishman, vice president for taxes at Amazon – which has also been criticised for not paying enough corporation tax, and Joe Billante, chief financial officer for the European arm of eBay, appeared before the public accounts committee yesterday.

Miss Flint said the firms were ‘profiteers from evasion of tax’.

But Mr Billante said: ‘I do not want these sellers on our platform. If anyone is not compliant and we are notified, we take action.’

Mr Dishman added: ‘We recognise there are a proportion of bad actors. We would like all bad actors off our platform.’

Richard Allen, of Retailers Against VAT Abuse Schemes, said: ‘Twenty per cent is a large sum. If competitors are avoiding the 20 per cent you can’t compete.’