Online traders and private tutors are next in line for HMRC’s rolling programme of tax crackdowns, and a spokesman told AccountingWEB that the accountancy profession could be a potential target. Nick Huber reports.
Tax experts started sounding warnings about etrading last week and HMRC confirmed its latest targets in an official announcement on Monday 13 June.
The online marketplaces campaign will focus on people buy and sell goods as a trade or business and who fail to pay the tax owed. HMRC software will trawl the net for traders who may have failed to pay the right tax. The “web robot” approach drew criticism from privacy campaigners, but people who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign, HMRC said.
Regular trade is defined through specific criteria known as the “badges of trade”, including regularity, buying and selling for profit; profit motive and the quantity of goods or services sold.
1. Registering with HMRC is compulsory but does not mean you will pay tax or NIC automatically. You will have to work out your profits annually - preferably to coincide with the tax year, ending on 5 April.
2. Keep a separate bank account for business, so that you can show HMRC the separation of business from personal sales.
3. Keep a note of all the costs directly related to the business.
4. Keep a record of costs that relate partly to the business, such as use of home and car and the ratios of business and personal use, so that the business use proportion can be claimed as a tax expense.
Source: George Bull, Baker Tilly.
George Bull, head of tax at Baker Tilly, said that although only a very small proportion of people buying and selling on eBay would probably qualify as traders, the amounts of tax owed could be a “sizeable chunk of revenue”.
In response to the latest initiative, Bull issued some simple points for online traders who might be unclear about their obligations (*text edited, see box, right and comment below).
Accountants need to take particular care to ensure clients are declaring all income, and explain rules on whether someone is conducting a business, said Gary Ashford, tax investigations director at RSM Tenon. “It’s about remembering the basics when a client is filling out a tax return. It’s always could good to check whether your client has other sources of income,” he said.
The latest targeted campaign is part of an anti-evasion strategy designed to recoup up to £7bn a year by 2015. Previous trade campaigns have targeted plumbers, doctors and dentists, and HMRC has already indicated that it is looking at and VAT “defaulters” who earn more than the £73,000 turnover VAT threshold but who haven’t registered for the indirect tax) .
The Chartered Institute of Taxation (CIOT) broadly welcomed the latest tax campaigns but voiced concern that HMRC considered traders that continually reported income just under the VAT threshold as likely to be evading tax.
“Clearly those who are evading tax need to be tackled, but some businesses deliberately keep below the threshold to legitimately avoid being VAT registered, as it can significantly increase their real selling prices and reduce profits where a business sells to individuals and can be very bureaucratic,” the CIOT said.
The Plumber Tax Safe Plan campaign could be extended to other skilled tradespeople such as carpenters or electricians later this year, an HMRC spokesman said.
The department had an open mind and could target its next campaign on certain white collar professionals. “It may even be accountants or lawyers… Anywhere there is the potential not to disclose all your income,” he added.