A BBC Panorama team has smuggled goods into Britain and then sold them on eBay and Amazon to highlight a fraud costing the country a billion pounds a year.
The undercover team imported goods from China and didn't pay VAT at the border.
Amazon and eBay told the BBC that they take VAT fraud seriously and they work closely with HMRC to stop it happening.
The fraud costs the UK more than £1bn a year and puts UK firms out of business because they cannot compete with sellers who have evaded VAT.
British traders Roni and Neven Juretic sell phone and tablet covers online, but their sales fell by 60 per cent because they were undercut by fraudulent sellers.
Roni Juretic said: "If they're selling it 20% cheaper because they're not charging VAT, then it's impossible for us to reach those prices. That's why a lot of the other UK competitors have dropped away."
Importers should pay VAT when they bring goods into the UK, and charge it when they sell them to customers. But evidence suggests thousands of traders don't do either.
Panorama set up a British company to show how the fraud works and imported bluetooth speakers and mobile phone cases from China.
The company evaded more than £500 of import VAT and was not challenged by the tax authorities. And Amazon and Ebay profited by charging fees for the sales of the illegal goods.
Meg Hillier, the chair of the parliamentary spending watchdog, told Panorama: "It's pretty shocking that you can do it so easily and so openly, so blatantly. We need to make sure that there are systems in place to stop that happening."
HMRC says it has new powers and is tackling the problem.
Tax Commissioner Jim Harra told Panorama: "It's something that you should not have done. But do I believe it is completely impossible to smuggle goods into the UK without paying duties if you're determined to do so? Of course, it's not."
The BBC has now repaid the evaded tax to HMRC.
Panorama's company, Bilton's Bargains, evaded VAT on two separate orders. The first was a consignment of Bluetooth speakers from Shenzhen in China.
A local shipping agent told an undercover reporter the company could avoid VAT by sending the goods to the UK through Holland, with the speakers hidden inside a bigger order.
The agent said it was: "The special way, you don't need to have VAT." The speakers were shipped to the UK and VAT of £312 was evaded.
The illegally imported goods were then sent to an Amazon warehouse, before Panorama bought them back. Amazon stored, sold and delivered the fraudulent goods.
Amazon says that no VAT fraud took place on its marketplace: "We have multiple methods for checking the legitimacy of seller accounts and Bilton's Bargains has been suspended."
Amazon says Bilton's Bargains was not asked for a VAT number because it is a British company and might be exempt.
But Amazon doesn't always ask foreign companies to provide a VAT number either. Research carried out for Panorama in September suggested 60% of the top Chinese sellers in Europe listed on Amazon did not display a valid VAT number.
Amazon says it now has VAT numbers that cover 95% of sales from foreign sellers who use an Amazon warehouse.
For the second crime, Bilton's Bargains was registered as a Chinese seller on eBay. Panorama imported 270 mobile phone covers without paying VAT and listed them for sale.
The programme was able to buy one of the phone covers back, before eBay limited the account because Bilton's Bargains was a new seller.
EBay says the seller limit is one of a range of anti-fraud measures and that it was largely effective in this case: "By inserting a velocity limit on new accounts, eBay is able to reduce the risk of all fraud."
Both eBay and Amazon say fraud is bad for business and that they want fair play for all sellers on their sites.
In last week's budget, the government announced the laws surrounding online VAT fraud would be tightened.