These companies have been said to exploit lax UK registration rules to avoid paying VAT and import taxes, costing the Treasury millions annually.

Investigations reveal that these firms establish bogus UK front companies, often using residential addresses with no genuine connection to the business. Examples include a single director in China setting up 87 UK companies and a student accommodation flat in London registered as the address for 54 companies, The Times reports.

These companies disappear when HMRC attempts to collect unpaid taxes, only to reappear under different names. Critics argue that HMRC’s checks on company registration and VAT applications are inadequate, allowing this fraudulent activity to flourish.

While HMRC claims online marketplaces are responsible for collecting VAT from overseas sellers, experts believe identifying and pursuing unpaid taxes from these fraudulent companies remains a significant challenge.

This situation has led to calls for stricter identity verification and increased scrutiny of company registrations to combat this growing problem.