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Tax and Internet Traders

By admin
01 Jul 2015
Tax Investigation

On 25th July the BBC reported that HMRC is to extend powers to allow them to gather information and target internet traders. The news follows a consultation document published by HMRC on 22 July regarding the extension of data gathering powers. The extension of powers is not a surprise anymore! Very soon, the inspector you are meeting with will know the colour of the pants you are wearing that day.

The proposal follows a series of extensive amendments which allow HMRC to serve notice on third parties for the purposes of checking, assisting with the efficient and effective discharge of HMRC’s tax functions and enables HMRC to simply monitor taxpayers. The information is used to make connections against those submitted on tax returns etc.

Section 228 of the Finance Act 2013 provided new powers to collect data from merchant acquirers: businesses that process credit and debit card transactions. The data can be utilised by HMRC to identify internet traders that are not declaring or under declaring their income. However, the internet has many forms of payment, for example, digital wallets that are not covered by the existing legislation. The intention is to legislate to extend access to two similar sorts of data.

The changes will apply to data held by:

  • Electronic payment providers: businesses that perform a similar function to merchant acquirers by handling monetary transactions
  • Business intermediaries: businesses that allow customers to make orders, purchases or reservations, relating to goods, services or digital content

Intermediaries that are likely to be recipients of notices will include:

  • Advertising boards or platforms
  • App stores
  • Booking and reservation intermediaries

The information will be handled by HMRC’s Risk and Intelligence Service. RIS is responsible for:

  • Collating information
  • Identifying those operating in the hidden economy
  • Receiving and exchanging information with other government departments
  • Researching and identifying campaign and taskforce targets

RIS have access to a lot more information and these new powers will simply add more data with which to compare with that already held. RIS is directly responsible for Connect (HMRC’s fraud detection system). It is an electronic analytical tool built by BAE systems (also responsible for building software systems to combat cyber-crime). Connect is held to uncover hidden relationships between people, organisations and data. The sources of data include that from:

  • Other government departments
  • Companies House
  • Land Registry
  • Border Agency
  • Foreign tax organisations via treaties and arrangements (soon to be that received under automatic exchange agreements)
  • Tax (income, corporate, PAYE and VAT) returns
  • Bank accounts
  • Credit reference agencies
  • Online social networking
  • Other third party sources (those subject to information notice requests)

What becomes immediately apparent is that this information if analysed correctly, will allow HMRC to identify those trading on the internet with a view to a profit.

HMRC continues to evolve, develop on their fancy tools and will use them to select and work enquiries as well as determine the colour of your pants. Recent comments are that HMRC simply cannot cope with the level of information they have and number of taxpayers that appear to be under declaring income. This shouldn’t give anyone comfort given that where this is tax evasion, HMRC may go back twenty years. It is likely that within a few years, HMRC will be managing the volume. The best course of action for someone who has been operating in the hidden economy will be to make a timely voluntary disclosure, probably before they receive a letter.

HMRC announced plans to extend its data-gathering powers to target suspected tax evaders in the ‘app economy’. The proposals announced in ‘tackling the hidden economy: Extension of data-gathering powers’ would give HMRC the power to access data from the main app stores, such as Apple, Amazon and Google. HMRC believes that app stores, as well as online platforms and booking systems, are able to provide them with information on online businesses which may not have declared the full value of their sales or may not even be registered with HMRC.

The proposals could allow HMRC easier access to data from a variety of online marketplaces including Gumtree, Craigslist and Airbnb. HMRC has already extended data-gathering powers to online purchase methods such as “digital wallets” – an increasingly popular payment model allowing customers to make online transactions. [UHY Hacker Young]

The new powers will give the taxman access to information from Paypal, the online payment company owned by Ebay, smartphone app stores run by Apple and Google, holiday comparison websites and a host of other online retailers.

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