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Claim eBay account was hacked failed to win appeal

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A taxpayer’s claim that hackers had been paying money into his online trading accounts failed to convince the first tier tribunal and HMRC’s assessment of unpaid tax and penalties was confirmed.

29th Aug 2023
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Online trader Vitalie Milasenco had been the subject of an HMRC enquiry in 2014, the outcome being that he had been in receipt of income from an eBay account for the tax years 2009/10 to 2012/13. Milasenco did not appeal this assessment and was subsequently required to submit tax returns with effect from the 2013/14 year.

However that was not the end of the story. While Milasenco dutifully submitted his next three tax returns to 2015/16, these only included income from his employment, not from self-employment. Following these three returns he notified HMRC that as he had no self-employed income, he was not required to submit further returns.

Perhaps in response to this, HMRC opened an enquiry into Milasenco’s 2014/15 return in January 2017, followed by a closure notice for that year and discovery assessments for the years 2013/14, 2015/16 and 2016/17. The total amount assessed was £19,064, with penalties for deliberate but unconcealed errors and for a failure to notify totalling £9,341.

Milasenco appealed these amounts to the first tier tribunal (FTT).

Burden of proof

Milasenco requested that the appeal be dealt with by paper under Rule 26 of the Tribunal Procedure (FTT) (TC) Rules 2009, citing his poor health, which would prevent him from attending a hearing physically or virtually.

The FTT noted that the burden was on HMRC to prove that the conditions for the discovery assessments were met, with the burden to demonstrate that the assessments were excessive falling on Milasenco.

After consideration of the evidence provided by HMRC, the FTT determined that as late as 2016 Milasenco had items for sale on eBay under the username geminis73. The main items traded were recording tapes and mobile phones and accessories.

During the 2014/15 tax year, Milasenco had opened a further eBay account under gemini-73-UK, which again dealt in electronic devices and tapes. Multiple payments were received from eBay and Amazon (and later another trading platform, Cellpex), either directly into his bank account or via a linked PayPal account.

In total, Milasenco’s bank account showed income from PayPal of £125,234 and amounts paid via PayPal of £48,164 during the 2014/15 tax year.

Surprisingly helpful hackers

Milasenco was asked about these entries but could offer no explanation other than to say that they were unauthorised. He claimed that his eBay and PayPal accounts had been hacked multiple times and that many of the PayPal transactions were personal, not business.

His claims of being the victim of hacking were dismissed by HMRC and the FTT, likely because hackers don’t tend to pass their fraudulent funds onto the victim, as had apparently happened in Milasenco’s case.

Due to the volume of transactions involved, the FTT was satisfied that Milasenco had continued to trade in goods online.

Reasonable and generous

The FTT agreed that HMRC had complied with the requirements of TMA 1970 s.29(1) and so the assessments were valid. It also agreed that the failure by Milasenco to declare his self-employed income could be nothing other than deliberate, but that there was no attempt by him to conceal it.

With regard to the amount assessed by HMRC, the officer first considered using the evidence they had gathered in respect of the 2014/15 tax year as the basis for the four years of assessments. However, they instead opted to base their calculations on the figures from the earlier enquiry into the years to 2012/13. The FTT found this a reasonable, if somewhat generous, approach and therefore found the amounts justified and not excessive.

Turning to the penalties, Milasenco received a failure to notify penalty for the 2016/17 year and inaccuracy penalties for the preceding three years. The FTT agreed that these penalties could be based on deliberate but unconcealed behaviour on Milasenco’s part, meaning they could be up to 70% of the potential lost revenue.

HMRC had given a significant reduction to the penalty percentage based on the assistance Milasenco had provided during the enquiry, effectively reducing it to 49%. The FTT again agreed this was reasonable, bordering on generous, and so saw no reason to alter it.

Finally, Milasenco had referred to his medical condition and his poor financial position in his submissions, however the FTT found that neither of these factors had any bearing on the assessments and penalties raised.

The appeal was dismissed in full.

Asking for trouble

Having been found to have undeclared self-employment income up to the 2012/13 tax year, it was perhaps asking for trouble to then fail to declare any such income on the following returns. All in all, HMRC seem to have been overly benevolent during this enquiry.

Replies (1)

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By Hugo Fair
30th Aug 2023 14:49

I've had the same problem with hackers ... where, despite performing no discernible work for them, these so-called 'employers' kept transferring money into my bank account (every single month)!

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