On 22nd July 2015 HMRC issued a consultation document on this subject stating that by their estimation in 2012/2013, some £5.9bn tax was lost to the economy by businesses or individuals failing to declare a source of income.
The basic idea is to collect data from third parties who facilitate trade either between businesses or business to consumers and largely through those providing the online facilities through which these transactions take place. This will affect those selling through ebay, amazon, etsy, airbnb and paypal including apps sold through Apple’s App store and the Google Play Store.
Let’s look at it simply, banks are already obliged to provide HMRC with details of interest paid to individuals and businesses and when tax returns are submitted HMRC can run a simple cross check with returns and throw out any mismatches for further potential checks.
If we apply the same principal to the number of, or value of, transactions flowing through the websites listed above then HMRC will have the data they need to check if tax is being paid where it should be. Current legislative powers allows HMRC to demand details of Income, Transactions and Assets as well as name and address information and this will be extended to Electronic payment providers and business intermediaries.
Advertising boards and Platforms – linking a supplier with potential customers.
App Stores – a platform for applications for devices such as smartphones or tablets.
Booking and Reservation Intermediaries – reservation of goods or services and perhaps taking deposits.
All are likely to be affected.
It won’t just be sellers of good that will be affected but rental income and commissions to which this new approach will apply.
If you are a trader selling goods or services through a website, and remember my list is not exclusive, or you have a property which you let through an internet intermediary and don’t include the income you generate in your accounts or on your tax return for the relevant year you might receive a letter from HMRC enquiring into your tax return. That initial letter might look relatively innocuous at first but could broaden out into a full blown investigation with the risk of significant penalties if you are found to have concealed undisclosed income.
Who will the Revenue go for at first? They might go for the ‘big boys’, those with significant volumes of transactions or value of transactions, or they might test the water, and their systems, with smaller operators. However, what is clear is that with increasing amounts of business being transacted through the internet, HMRC will look to this as an increasing sources of funds and, no doubt, they will have the technology as well as the legislation to do this.
HMRC calculate that an attack on this basis will yield £860 million over the next 5 years. This isn’t significant even when you look at 2020/2021, where they anticipate raising £285 million, when compared to the £5.9 billion lost through the black economy, but it will have an effect on non compliant Small or Medium Sized Businesses or Sole Traders who don’t declare their full income and may encourage more of these to comply with tax legislation..
With an increasing use of the internet for shopping the government see an increasing ability for the evader to operate and I think we can see greater emphasis being placed on clamping down on ‘rogue’ traders. This is likely to be only the thin edge of the wedge.
If there is anything in this article you wish to discuss further please contact Philip Hunt 01603 616300 email firstname.lastname@example.org