Internet businesses face HMRC tax crackdown

Internet companies may have to provide more information on people and businesses who sell goods and services online, in a crackdown on tax evasion.

HM Revenue & Customs wants to target businesses that have failed to register for tax, and individuals who fail to declare the money they make online.

Should this come as a surprise? Well no; not really. It had to happen sooner rather than later, and it’s something that many accountancy professionals have predicting for years now.

Under the new rules HMRC will take a closer look at online transactions for sites like eBay, Paypal, holiday letting sites and other internet retailers. Accountants believe the move maybe one of the biggest tax crackdowns in history.

So what is HM Revenues & Customs planning to do? Well, the tax authority aims to collect “bulk” information from internet companies, targeting tens of thousands of self-employed sellers who fail to declare income they make on the internet; transactions that HMRC believes are costing billions of pounds a year. The Treasury forecasts anticipate recouping £860m in the next five years as it seeks to ensure the new generation of online businesses pay their full share of tax.

With its new power HMRC will be able to obtain information from Paypal – the online payment company owned by eBay – smartphone app stores run by Apple and Google, along with holiday comparison websites and a raft of additional online retailers. What’s more, the thousands of Britons who let out their homes on the internet or sell goods on eBay without paying tax will also be targeted and have their affairs heavily scrutinised. So if this applies to you, don’t say you haven’t been warned.

How significant will the crackdown be? Well, a recent consultation published by HMRC states the tax authority will be able to collect the names, addresses and revenues of any businesses which use the websites. They will then compare this data with tax returns filed by the businesses and use it to pursue those who have apparently failed to pay what is rightly due. Who will be targeted? Well, apparently anyone who makes a business profit through online transactions, no matter how small the gain might be.

Commenting on the new rules, Anita Monteith, tax expert at the Institute of Chartered Accountants in England and Wales (ICAEW), said:
“Where people have a business they should be paying tax. [However] my worry will be that we will be frightening people because they don’t like getting a letter from HMRC. I would like to see if this follows through much more and better information coming from HMRC.”

An HMRC spokesman said:

“We want businesses to pay their fair share and ensure legitimate traders are not left struggling to compete against tax cheats. That’s why we’re consulting on updating HMRC’s existing data collection powers for the digital age.”

“The information will only be used to identify [those] businesses that are breaking the law by evading paying the tax they owe. We cannot find out what people buy, only what businesses have sold, but not declared.”

But what about the online payment companies? What do the likes of eBay and Paypal think? Well, a spokesman for eBay added:
“It is important that anyone selling professionally on eBay operates in compliance with the law.”

“If you are just selling unwanted items for spare cash, then you may not need to worry about tax. If you are buying or selling an item with a view to making a profit, then you may be able to pay tax on any profits you make and you may need to account for VAT on your activity.”

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