If you can’t be seen, it is harder to be caught. It is a principle that has helped evade taxes for centuries. The simplest idea: be paid in cash, keep cash, only spend cash. As a tax adviser, not many clients are willing to pay in cash so I would need to think of another solution to the issue.
Tax advisers don’t generally use tills although if we did, we could use some electronic sales suppression (‘ESS’) software. Disappointingly, powers have been announced to tackle electronic sales suppression and those supplying the software or hardware. HMRC are getting better at targeting businesses suppressing sales due to the manner their data gathering machine, connect, identifies anomalies. Those merchants are then likely to be subject to a VAT compliance visit.
Having discounted being a professional service provider with a till, we wondered if we could sell our services over the net. Customers would pay using digital platforms, although this year’s Finance Bill introduced a power to make regulations requiring certain UK digital platforms to report information about the income of sellers of services on their platform.
On 30 July 2021 HMRC launched a consultation on the implementation of the OECD Model Reporting Rules requiring digital platforms to report details of the income of sellers on their platform to the tax authority. The consultation closes on 22 October 2021.
The model rules require those platforms to report information to tax authorities. The authorities will then exchange that information with other tax authorities. It will also be used by the reporting tax authority for its own compliance purposes. Information will also be given to the sellers to help them comply with their tax obligations.
Each reporting platform operator must provide the following information to identify the seller and the jurisdiction that they are linked to for reporting purposes:
- details of the seller
- details of the payments made to them
- tax Identification Number
- the ‘financial account identifier’ e.g. (Account number and sort code, IBAN)
- the name of the holder of the account to which payments are made
- if the name of the account holder name is different to the seller, any other available identifying information
- the country in which the seller is resident on the basis of their address
- the number of services and total consideration paid during each quarter of the reportable period
- the amount of any fees, commission or taxes withheld or charged by the platform operator during each quarter
There are additional reporting requirements where the seller provides immoveable property rental services:
- the address of each property,
- the number of rentals,
- the number of days each property listing was rented during the reportable period and
- if available, the type of listing.
Information relating to internet traders has been flowing to HMRC for some time following a consultation document published on 22 July 2015 and the subsequent amendment to HMRC’s information powers. The Finance Act 2013 also introduced powers to collect data from merchant businesses.
During Covid, the number of internet sellers increased because many on furlough wished to increase alternative sources of income (and dispose of their boring day job). Sales generally increased over the internet and therefore, HMRC has an ongoing initiative to identify defaulting taxpayers. Watch out for your letter!
Not deterred by HMRC’s efforts we must think outside the box. On 19th December 2018, HMRC issued a policy paper on Cryptocurrencies. Once upon a time, Cryptocurrencies were so speculative purchasing them could be regarded as gambling. However, now that they have become slightly more lucrative for some, HMRC gave more consideration to how they could tax them. Slight problem with Cryptocurrencies, most investors have no idea when they realise a taxable gain or what the gain is calculated on. There are some interesting implications where fees are satisfied in tokens, there are blockchain forks (hard or soft fork madam?), airdrops or if the private key is lost. To complicate matters further, we shouldn’t ignore the currency and exchange implications. For all the above reasons, HMRC has set up the Cryptoasset Taskforce.
Investigations into those dealing in Cryptocurrencies will vary from the naïve investor (probably most investors) through to those utilising Cryptocurrencies to ‘wash’ money – unfortunately, the currencies are linked to fraud and crime.
HMRC receive information directly from platforms so it is possible that a self-assessment return would be amended directly or even an assessment raised. The ill-informed recipient will likely be shocked.
This is not thinking outside the box though, so let’s have a go: What if we did something with call and put options over Cryptocurrencies or received an option over Cryptocurrencies as settlement of our fees? What if the option were provided today whilst the value was low, and we place that option in a ‘structure’? What type of structure could we use? Could we save ourselves tax? Things that spring to mind include some offshore structures with specific purposes for the benefit of certain persons as well as some ‘pension’ arrangements maybe linked to insurance wrappers. So, there is the loose makings of an idea and one we probably should not have loosely pontificated over in a widely distributed document – keep it quiet!