'Hidden economy' hit squads ramp up for 2016

iStock_000059521910_Small.jpg

iStock_MariuszBlach_target
Practice correspondent
Sift Media
Share this content
12

Britons have turned to ‘the sharing economy’ in their droves for extra cash. But HMRC will be gunning for this £15bn market in 2016, said the ACCA.

In a recent statement, the ACCA warned online traders to err on the side of caution and declare their income. According to Chas Roy-Chowdhury, ACCA’s head of taxation, HMRC will be turning the screw on online traders in 2016 - in particular property rentals. “Money made by renting out a property through Airbnb will be classed as income and must be declared to the taxman,” said Roy-Chowdhury. “If you are using the website to rent out a property you own then I would strongly advise to make the necessary declaration to HMRC.

The technical term for the sharing economy is ‘collaborative consumption’. As a broad definition, collaborative consumption is “a class of economic arrangements in which participants share access to products or services, rather than having individual ownership”. All together the market is valued at £15bn.

A prominent example of a service operating in the share economy space is Airbnb, a website where people advertise private lodging. So, for example, someone might rent their spare room to tourists.

But with a tax gap to close, peer-to-peer collaboration in the share economy has attracted the gaze of HMRC. In a consultation paper titled 'Tackling the Hidden Economy', HMRC indicated it will force third parties, like Airbnb, to hand over data.

In 2013 (Finance Act 2013 section 228), HMRC was given new powers to collect data from businesses that process credit and debit card transactions. These powers will now be broadened to data held by electronic payment providers (not necessarily in relation to credit and debit cards), and business intermediaries which allow “customers to make orders, purchases or reservations, relating to goods, services or digital content”.

“Data can be particularly powerful when it is collected from third parties who facilitate trade, either between businesses, or between businesses and consumers,” said HMRC. “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.”

HMRC plans to raise £285m of extra tax a year by 2021 using these new sources of online data to track down small businesses that are under-declaring their sales. Apple, PayPal, Amazon, Airbnb and online marketplaces like Etsy are likely to be the chief targets.

“Data about taxable activity plays a key role in enabling HMRC to detect those operating in the hidden economy,” wrote HMRC, “and to target resources to tackle them more efficiently”.

Online traders can expect visits from HMRC. On Any Answers, AccountingWEB user Glenzzy warned another member whose client was due a visit from the taxman: There “will be nothing routine about the visit”.

“They will turn up pre armed with info that they think your client is guilty of,” he said. “You need a serious chat with your client to sound him out for what the issue could be.”

“HMRC are under tremendous pressure from the government to increase the tax revenues collected,” said Roy-Chowdhury. “If they believe that you are deliberately withholding information about a source of income they will look to penalise you.”

Replies

Please login or register to join the discussion.

avatar
By SDChamp
25th Jan 2016 12:36

Hitting the little guy again

Just like  this government's approach to on line security issues, the strategy seems to be sack HMRC staff, force ISP's to build back doors into encryption so crappy overpriced algorythimic software can drege up legions of evasion suspects probably most of whom will be false positives and prosecute them anyway.  Meanwhile, carry on having cosy chats with global corps to agree derisory CT arrangements and facilitate continued off-shore tax avoidance on a massive scale.

Used to be called despotism in the good ol' days.

Any pretence this shower had of being business-freindly in the traditional sense has long escaped the stable.

 

Thanks (7)
avatar
25th Jan 2016 12:52

HMRC business friendly?

When were HMRC ever 'business friendly'? Or does the poster above not understand the difference between HMRC and the ruling political party of the day?

High time HMRC tightened up on this area- small traders should not go on about 'the big guys getting away with it' whilst blantantly not declaring their own income.

I have a client that uses airBnB and am happy to say he's always reported the income (and expenses).

Multi national companies and their tax structures are extremely difficult to change as it involves getting the agreement of multiple countries to change the rules governing cross border transactions- most of the current structures are a direct result of the transfer pricing rules and certain countries offering little or no tax jurisdictions so they can pull in large amounts of tax to the detriment of other countries.  Sometimes talking will yield results where the current system strictly yields nothing.

In the meantime those multinationals pay a lot of other forms of taxes so perhaps look at the entire picture rather than the dumbed down 'sales of 2bn and only 40m in coporation tax' or the even more stupid 'banks earn 10bn profits and pay no tax this year' (ever heard of losses brought forward, oh Guardian readers?).

Thanks (1)
By NJM
25th Jan 2016 13:16

HMRC business friendly?

Couldn't agree more, Ian. And, would also like to add the ability to claim capital allowances, allows taxable profits to be reduced, which interestingly suggests "investment" and as a consequence "growth", which should in turn lead to more profit and thus more tax and so on and on.

Thanks (0)
25th Jan 2016 13:22

What I find telling is:

"HMRC plans to raise £285m of extra tax a year by 2021 using these new sources of online data to track down small businesses that are under-declaring their sales. Apple, PayPal, Amazon, Airbnb and online marketplaces like Etsy are likely to be the chief targets."

Confirmation that the small guy is the ultimate target, whilst the big multi-national avoiders are the enablers.

Thanks (5)

no profits

Funny, we used to do a lot of work with online traders, but I canned it as a revenue stream as invariably they didn't make any money which made them reluctant to pay us very much.

Once they hit the VAT threshold, it was almost impossible to compete with traders under it, and under the VAT threshold its just hobby level income quite frankly. 

Taxable profit was very thin on the ground.

The main angle I would suggest would be VAT registration thresholds.

On the plus side it also shows if you want to keep under the radar, declare the turnover, just make up the costs as this is harder to track.  Did I say that out loud?

Thanks (0)
avatar
25th Jan 2016 14:29

What a crazy statement to make

 

Extract above

In a recent statement, the ACCA warned online traders to err on the side of caution and declare their income.

 

I should bloody hope they did.   I would have thought you could have taken the above for granted, no need to issue a statement. 

Thanks (0)
avatar
25th Jan 2016 14:46

Yes that jarred with me as well.

 Err of the side of caution and declare your income!  I guess they mean even if it is minimal declare it anyway. Do I need to tell them I sold a T-shirt on Ebay?

 

Thanks (1)
avatar
By tedbuck
25th Jan 2016 15:05

small traders and tax evasion

Always happy to see the big boys hit but it's about time the little evaders were as well. The self employed plumber/decorator or whatever sitting in his £500,000 house on an income of £12,000 a year claiming income support, working tax credits and so on deserves no sympathy. And gets none from me as I am paying most of his share of tax. As for the online traders I heard of two that do not declare their income at all so more power to HMRC's elbow. As for the Footie stars and their tax fiddles - we are all paying their share for them which, frankly, I don't appreciate.

There are a huge number of small tax evaders fiddling the system and if they all coughed up the rest of us would pay less so who can argue with that?

Thanks (4)
By DJKL
25th Jan 2016 23:00

Wishful thinking

tedbuck wrote:

There are a huge number of small tax evaders fiddling the system and if they all coughed up the rest of us would pay less so who can argue with that?

Concur with the sentiment but I think it is wishful thinking to believe that if others paid more we would pay less; if others pay more the total tax take will increase, and maybe service provision paid from taxes will improve, but I doubt I will ever see the day when a government says " We have been so fantastic at collecting taxes that we have decided to reduce tax rates".

Tax rates are only reduced (we are given some of our money back) when we are being persuaded to give one lot or the other lot five more years, government expenditure grows to meet the tax take like winter follows autumn.

Thanks (0)
avatar
26th Jan 2016 08:36

Practice what we preach

tedbuck wrote:

Always happy to see the big boys hit but it's about time the little evaders were as well. The self employed plumber/decorator or whatever sitting in his £500,000 house on an income of £12,000 a year claiming income support, working tax credits and so on deserves no sympathy. And gets none from me as I am paying most of his share of tax. As for the online traders I heard of two that do not declare their income at all so more power to HMRC's elbow. As for the Footie stars and their tax fiddles - we are all paying their share for them which, frankly, I don't appreciate.

There are a huge number of small tax evaders fiddling the system and if they all coughed up the rest of us would pay less so who can argue with that?

Hear hear, tedbuck.

Of course, we can help ensure that we are not complicit in assisting traders to not declare their earnings. For example, not paying them in cash and insisting on a proper invoice/receipt.

For the record I never pay tradesman in cash, always cheque, and whilst it was particularly galling on £40K extension, when the builder thought I was mad paying the VAT, I was not prepared to give him the opportunity to fiddle.

A case of practice what we preach guys?

Thanks (0)
avatar
26th Jan 2016 07:08

Two Sides to this Coin

By all means the government should ensure that HMRC collects taxes whenever they arise but they have a responsibility to see that the cash raised on our behalf is spent properly too. For example, between 2000 and 2010 public sector expenditure rose from £338bn to £663bn (+96%) to no appreciable benefit to the tax payer. Instead of cutting back this unacceptable inflation that expenditure has instead risen every year since 2010.   

In addition we currently have a growing army of managerial civil servants in both central and local government earning more than the Prime Minister; in some cases many times more so -  e,g, glorified town clerks on £200,000 + a year. That too is unacceptable.

Thanks (2)
avatar
27th Jan 2016 21:37

SARS reports etc

How many times have you filed a return to alert HMRC as to wrong doing and nothing happens - they need to get on top of the exisiting system - easy money if they staffed it properly and followed up on the reports

Thanks (1)