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HMRC puts etraders on alert

17th Jun 2011
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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.

Advice to online traders

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.

Replies (7)

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By Malcolm Veall
20th Jun 2011 11:49

Box is not Badges of Trade

The "box on the right" does not give guidance ont he badges of trade but on best practice if it is a trade.

Thanks (0)
By The Black Knight
20th Jun 2011 12:09

Special offers ?

Will everyone eventually recieve a special offer ? Why not surely some groups are being treated unfairly !

and should errant taxpayers wait until their offer of lower penalties is announced ?

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
20th Jun 2011 13:34

Caught on the hop again

@Malcolm - you got me again! It was not the writer who is to blame, but me. I inserted some words in the paragraph to explain the presence of the box and attempted to do a quick summary of the contents. I should have read further than the first paragraph!

Very sorry for any confusion caused. I'll try to make sure we're (OK, OK - I'm) more careful in the future on things like this.

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By Simon Sweetman
20th Jun 2011 14:26

not so special

 HMRC has made it (fairly) clear that somebody outside the target group who comes through with a similar confession etc will get the same treatment. That includes the same level of penalty.

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By The Black Knight
21st Jun 2011 09:39


Does that include anyone or is it restricted to similar trades e.g. Electricians being uncluded as plumbers.

Surely everyone else will be dealt with as an unprompted disclosure and the penalty will depend on their behaviour, being  careless, to deliberate, these penalties are potentially a lot higher than the 10% and 20% being offered to those who one would assume fall in the fraudulent (deliberate and concealed) end of the scale.

Added to which the number of years you have to disclose is different for different groups, plumbers do not for example have to go back 20 years.

Would it be possible in the future to open an ebay account to obtain lower penalties, a poor mans version of a lichtenstein disclosure ?

Am I missing something ?

Personally I think scheme after scheme is offensive to a plumber (or other taxpayer) that has paid his taxes correctly for the last 20 years only to see his (cash in hand) competitor produce a get out of jail free card and only pay tax for a few of those years. Every body should be included in the scheme, over say the next 3 years and the book should be thrown at those remaining rather than just keep threatening which has been going on with no action for as long as I can remember.

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By Malcolm Veall
21st Jun 2011 10:55

Could not agree more


I could not agree more - how can I tell a client that he must comply with the law when others, who are fraudsters, get off so lightly.



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By wblewis
11th Jun 2012 11:24

HMRC's Special offers.

From what I have seen so far these target forces are ill conceived and poorly targeted to the extent that for the average recipient the letters are offensive and designed purely to intimidate the innocent. I would suggest that these efforts are a smoke screen for the to cover failures of the day to systems and procedures. Monies invested in "special software"  could have been more productively used on improving existing software.

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