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HMRC hunts for £5.9bn hidden online economy

Governmental body seeks more powers to access online transactions information from shopping websites and app stores.

By Joao Lima

Online tax evasion has led HMRC to petition an increase in its powers on the amount of data it can get from online retail and comparison websites.

The government body is on the lookout for businesses that do not comply with tax registration processes, and individuals that do not report about revenue they make selling online.

HMRC said this "hidden economy" could be worth up to £5.9 billion.

The body has launched a 12 weeks consultation on its plans to expand its powers for business and individual data collection, which ends on October 14.

Andrew Watters, Director at Thomas Eggar said: "This is part of the larger attack on tax evasion.

"HMRC believe that a lot of people are making considerable sums of money by selling things via the internet. If you are selling the odd item, e.g. the buggy or bike which your child has grown out of, there is no tax consequence. If you are selling large amounts of items which you have acquired for this purpose, this is trading and is taxable."

The director added that there are issues of confidentiality as HMRC want the power to require internet companies to provide the identities of the individuals using their site.

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In the consultation document, it says: "Data can be particularly powerful when it is collected from third parties who facilitate trade, either between businesses, or between businesses and consumers.

"This is because they can provide information in bulk about the activity of large numbers of traders, and because third party data can be used as an independent check against the data that taxpayers themselves report to HMRC.

"Effective tackling of the hidden economy will ensure a level playing field between those businesses and individuals who comply with their tax obligations and those that do not."

HMRC’s plan to track down tax evasion will face three main barriers, according to Watters.

He added that the first hurdle will be HMRC getting access to the details of the individuals involved.

"The second hurdle will be whether HMRC will be able to argue that these individuals are trading. This can be a fairly tricky point and one obtains guidance from case law. That case law is summarised in the HMRC guidance on ‘badges of trade’.

"Hurdle three will be how to compute profits and what is an allowable deduction.

"The large players will no doubt get good advice. Smaller players will probably find it too expensive and too complicated to argue and will then have to proceed on the basis of HMRC assumptions."

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