Online traders hit with fines for unpaid taxes
For as long as anyone can remember, the accusation against HMRC is that it always goes after the little guy rather than the business behemoth. Of course, HMRC strenuously deny this claim, pointing out that they have a statutory duty to collect unpaid and undeclared tax from any citizen or business regardless of the size.
Whatever the truth is, we’ll leave you to judge but we note with interest that Economia (from ICAEW) has reported that HRMC is starting to impose “increasingly harsh penalties against online traders who fail to pay their taxes”.
HMRC actively look for deliberate tax defaulters online
Why online? There has always been a black economy in the UK (as in all other countries) so why are online traders in the spotlight in particular? It’s because they’re easier to find than “ghosts” (people HMRC simply does not know about) and “moonlighters” (taxpayers with undeclared sources of revenues, like so-called side hustlers).
Thanks to a new computer system on which over £120m has been spent, HMRC may be getting much much better at identifying ghosts and moonlighters. They now have at their disposal what the Daily Telegraph calls HMRC’s “snooper computer” – the Connect system.
The system, in the Telegraph’s words, “draws on information from myriad government and corporate sources to create a profile of each taxpayer’s total income” including but not limited to:
⦁ Bank accounts and financial institutions (including from 60 other countries and territories)
⦁ Child benefit payments
⦁ Council tax
⦁ DVLA
⦁ Earnings (from any employer)
⦁ Ebay, Amazon, Gumtree, Etsy, Airbnb
⦁ Facebook
⦁ Instagram
⦁ Land Registry
⦁ Maintenance payments
⦁ Previous tax investigations
⦁ Previous tax returns
⦁ Twitter
⦁ VAT
⦁ Visa and Mastercard transactions
Connect has already had some success. As reported in the FT, HMRC connected a series of credit card transactions against a private London address worth millions owned by someone who had no history with the taxman and was in receipt of the state pension. They then Googled this information to discover that the home was, in fact, being used as a brothel and that the owner had taken more than £100,000 in takings over at least six years.
Connect uses very sophisticated artificial intelligence to flag up “areas of concern”. Those areas of concern are then sent to their team of investigators who use more old-fashioned techniques to discover unpaid or underpaid tax, just like with the brothel owner mentioned in the paragraph above.
Ebay, Amazon, AirBnB, etc and HMRC
In September 2016, HMRC gained the power to monitor the accounts of online traders and sellers with a view to uncovering unpaid and underpaid taxes. Online platforms now have joint-and-several liability with the traders and sellers on their website (source: Accountancy Daily).
The taxman now also has the right to demand that eBay, Amazon, AirBnB, and other online platforms hand over your personal trading history on their sites (source: This Is Money).
HMRC is not looking for “trading allowance” users
Many taxpayers are unaware that there is a £1,000 tax free allowance for citizens with online revenue streams. The tax-free allowance however only relates to turnover on your additional revenue streams and not profit.
It’s not the people who take advantage of this trading allowance that HMRC is after however. It’s the people who involved in much larger examples of tax evasion that they’re interested in.
Of concern to HMRC is missing income tax (and related National Insurance payments) and VAT.
Missing income tax and VAT from UK-based traders will continue to be chased using a combination of forced disclosures from online platforms and by join-and-several liability notices.
VAT evasion from overseas traders has also been under the spotlight and, as a result, 4,600 “red flag” notices have been sent to online marketplaces. This has yielded £200m in additional VAT receipts, according to HMRC, and the number of overseas traders registered for VAT has also jumped significantly (source: City AM).
The technology to HMRC is only going to improve with time and it will be interesting to see if the much-vaunted “tax gap” – the difference between what HMRC expects to collect and what it actually does collet – narrows in the coming years. We reserve judgement because we can’t yet see a world in which the arms race between tax authorities and tax evaders will result in tax evaders giving up – the rewards, if you’re not discovered, are just too high for many.
Tax Advice for Online Traders
Call our team on 0113 387 5670, email enquiries@forthsonline.co.uk of fill out an Enquiry Form
to discuss your circumstances.
