HMRC’s new powers lead to unfettered access to taxpayers’ online sales and purchases information and should be a warning to anyone making a taxable income from online trading.
The Tax Office can now demand that online trading sites divulge their users’ data – without good reason which means you could be the next on a list to explain why you haven’t declared your income from trading online through Self Assessment.
It’s a common way to make money nowadays and if you aren’t already declaring your income from selling on ebay and the likes you should think about registering with HMRC as soon as you can so you can fill in a tax return each year.
The change to the law
HMRC were always able to demand information from internet businesses – if they had a valid suspicion of tax avoidance, or if the individual was already under investigation. The most important legal change is that no such reason for collecting the data needs to be given. Companies can now be compelled to hand over their clients’ and customers’ details to the government; even if there is no evidence that there are any tax laws being broken. This is known as ‘bulk’ data collection and is part of September 2016’s Finance Act.
HMRC do not have to seek permission from you and will not let you know if they have a file on your financial dealings.
Which internet companies are we talking about?
- Payment companies, like PayPal and Worldpay
- Marketplaces, like Etsy and notonthehighstreet
- Auction sites, like eBay
- Travel sites, like Airbnb and Booking.com
Basically, any online site that brings buyers and sellers together in one place and the ‘safe’ payment sites that facilitate the transactions.
What information is being collected?
- Name
- Address
- Inline username
- Email address
- Phone number
- National Insurance number
- Status as a registered business
- VAT number
- Bank account details; including branch, how many transactions go through the account and what they are worth
Why have they even got this power?
There is a genuine concern that the Treasury is losing out on substantial income tax payments through the somewhat hidden, online ‘sharing economy’. Doubtless, a few people are deliberately avoiding tax by exploiting the gaps in the system.
But it is reported by ‘Money Mail’ that a lot of users of these sites are genuinely unaware that they should be paying tax on this income, or that they should be submitting Self Assessment tax returns even if it remains under the threshold. Most people think that, after the website is paid its percentage fee, any money they make is free and above board. This is particularly true of people who have turned a hobby into a small ‘pocket money’ earner on the side.
Who collects the information?
‘Data analysts’ and ‘intelligence analysts’ fill HMRC’s 5 data analysis centres that are dotted across the country. Their job adverts show a salary from £27,000 – £38,000 per year. They build up dossiers on individual taxpayers using information collected from data from the aforementioned internet sites and other social media portals, like LinkedIn and Facebook. If you post it – they know it, and you will be none the wiser.
What the data is used for
The teams of investigators all input their data into the Connect database. This is a massive government resource which links all the information on one individual together. DVLA records and the Land Registry are two examples of other information the government has on citizens.
The idea is that mass data collection highlights patterns that indicate purposeful tax evasion – and those individuals should be held to account. For example, someone running a profitable online business that never declares this income or pays the requisite tax.
As reported in the MailOnline, Deloitte’s Bill Dodway explains, “Lots of the data will be for perfectly honest, straightforward transactions. But, in the middle of it, HMRC may find evidence of tax evasion. However, it will not be going after the small-time sellers, such as someone getting rid of an iPhone on eBay. It’s looking for patterns. For example, if you are selling dozens every month, that would suggest you are running a business.”
Is it too much?
But there is some concern over the part of the ruling that allows the data to be used for ‘any purpose’. This is flagged up by the Electronic Money Association, alongside issues of a monthly data collection and the extra admin this costs companies, customer privacy and data security. Many companies directly involved in the new laws are members of the EMA, such as eBay and PayPal. Its Chief Executive, Dr Thaer Sabri, said: “Customers may see firms as facilitating an intrusive power.”
Abbey Tax is a firm providing small business with representation during tax investigations. Guy Smith works for this firm and give some relatable context to this new phenomenon, “In the same way that HMRC used to target cash traders, such as newsagents and fish and chip shops, it wants to root out hidden earnings on the internet.”
He had “…a client who received a letter from HMRC detailing the number of transactions she had made on eBay and asking why she had not paid tax on them.”
Smith also shared a common sense example of how online life and real life must marry up under HMRC scrutiny; “Equally, if someone is flying off on luxury holidays, but claiming they earn £10,000 a year, that could raise a red flag.”
HMRC’s response is characteristically succinct, “This is about businesses who are trading without paying the tax they owe. Those who are declaring their income to HMRC as the law requires have nothing to worry about.”
What next?
These tax investigation teams will continue to gather data on all of us, with the intention of rooting out genuine tax evaders and avoiders. Recouping tax owed is good for us all, but at what cost to our privacy and data security? HMRC are already negotiating to have payment transfer services included in the ‘bulk’ data collection parameters. This sector is used by people who are transferring money abroad, like the company MoneyGram. Should we perhaps be seeing the results of the current laws first? What do you think?
