E-tailers face “biggest tax crackdown in history”
Currencies Direct August 28th 2015 - 3 minute read
Online sellers and e-tailers are facing one of the most significant tax crackdowns the UK has ever seen, as HM Revenue & Customs (HMRC) demands details about millions of online transactions.
Under powers bestowed on HMRC last year, individuals and businesses using sites like eBay, Etsy, Amazon, Airbnb and Gumtree are being targeted to uncover the identities of those who fail to declare income they make online. Undeclared income costs HMRC billions every year.
HMRC will be able to access information from PayPal and smartphone app stores run by Apple and Google, as well as a host of other online retailer services. Anyone selling services online or letting their homes will be scrutinised to ensure all income is properly declared and, more importantly, accurately taxed.
What powers does HMRC have?
A consultation published by HMRC reveals that it will be able to collect names, addresses and total revenues for any businesses or individuals sell products or services online. Once it has this information, it will look for discrepancies by going through it with a fine tooth comb and comparing it to an e-tailer’s previous tax returns.
Anyone found to have failed to pay the correct amount of tax will face penalties that could ruin their business’s financial position and reputation.
There are fears that HMRC could go on a fishing expedition that would see small business owners and those who are trying to turn a profit from a hobby sent demands for payments that they may not actually owe – already there is anecdotal evidence that this is exactly what’s happening.
This could be because, like every other government agency, HMRC has had to streamline its operations and doesn’t have enough resources to double-check that every seller it writes to deserves a letter.
The smart money says that, rather than receiving a nice tidy list of names from various platforms (which would raise interesting data protection issues), HMRC has just gone hunting through online marketplaces, searching out users who’ve identified themselves as business sellers.
Rebecca Reading, a corporate tax partner at Baker Tilly, told the Telegraph: “This would be one of the biggest tax crackdowns in history. It seems to me that this is a massive exponential growth of data between something we're all familiar with, such as collecting interest on bank accounts and savings accounts, to millions of online transactions.”
What can e-tailers do to stay out of trouble with HMRC?
The most obvious answer is to ensure that you are paying the correct amount of tax and filing your returns properly. E-tailers must fully understand their tax liabilities before they even consider setting up their online business, and the services of a tax professional are essential (if you’re not one yourself!). As we’ve said, this won’t protect you from getting an unwanted letter from HMRC, but at least you’ll be able to respond from the high ground.
Identifying yourself as a business, rather than as a private individual who’s just getting rid of some unwanted items, is also important. Normally, when setting up an account through sites like eBay and Etsy, there’ll be a “business seller” option that you can tick. That will let HMRC know that you’re trading as a company, allowing it to more easily check your records and confirm you’re complying with tax regulations.
Getting yourself up to speed with the laws around tax and running an online business is the only way to avoid against this tax crackdown, and bear in mind that if you’re a UK-based seller this campaign may also be to your benefit.
HMRC’s other target is online sellers from outside the EU who undermine British sellers by storing and shipping goods within the UK, but evade paying VAT: “[We] are cracking down hard on all forms of tax evasion, regardless of where it occurs or who commits it. We are determined to tackle deliberate non-compliance to ensure that the tax system operates fairly and efficiently to create a level playing field for all," said an HMRC spokesperson.