The National Audit Office (NAO) said the consumer regulator Trading Standards found companies failed to remove sellers often based in China that were flouting VAT rules, even after being informed about the non-compliance.
"The size of the VAT losses due to online VAT fraud or error on transactions taking place on Amazon’s and Ebay’s online platforms could be up to £1bn a year," the NAO said, citing figures from the Trading Standards Institute.
Retailers outside the EU selling to customers in the UK must pay 20 per cent of the value of goods sold and pay it to the British government.
In a statement, Ebay said: "We will continue to work closely with HMRC to ensure that all sellers on our platform comply with the law."
Amazon said it is working closely with HMRC on the matter, adding: "We promptly remove any seller that they inform us is not VAT compliant."
Online sales accounted for 14.5 per cent of all UK retail sales in 2016, and just over half of these were non-store sales, mainly through online marketplaces, where buyers and sellers can meet and transact, the NAO said.