As Shylock required his ‘pound of flesh’ in Shakespeare’s comedy, ‘Merchant of Venice’, so now do HMRC want more powers to obtain data from online merchants.
Several years ago HMRC’s bulk data-gathering powers were modernised and simplified and in 2013 the department obtained new powers to collect data from those companies who process credit and debit card transactions, referred to as ‘merchant acquirers’. Now HMRC wants to extend those powers to obtain data from business intermediaries and electronic payment providers although those businesses that trade through these channels could also be affected.
Many businesses use intermediaries to handle transactions and route custom through to their businesses. Intermediaries operate across many industries, such as take away restaurants, hotel bookings or to enable ticket resale for events.
HMRC believes that these intermediaries will be able to provide valuable information that can identify sellers who are evading tax.
The types of intermediary which are likely to hold the data the Revenue are interested in include:
• Advertising boards or platforms
• App stores
• Booking and reservations
HMRC would also like to obtain data where business intermediaries facilitate other taxable trades and where the information is held outside the UK.
Electronic payment providers
Whilst cash, credit and debit card payments remain the basis for the vast majority of transactions, businesses are increasingly adopting new payment models made possible through developments in the digital economy. One example of this is the ‘digital wallet’.
HMRC want to ensure that these methods of payment do not become a hiding place for tax evaders.
In its pursuit of more data-gathering powers HMRC have recently launched a consultation document titled, ‘Tackling the hidden economy: Extension of data-gathering powers’ which closes on 14th October 2015.
The rationale for HMRC’s desire to be more intrusive is the hidden economy. In 2012/13 the Revenue estimates that the tax gap; the difference between actual tax receipts and the tax that would be due if all taxpayers played fair, as a direct result of the hidden economy stood at £5.9 billion – 17% of the total tax gap.
Being able to collect data from third parties who facilitate trade, either between businesses, or between businesses and consumers, is a powerful tool. 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 information that taxpayers themselves report to HMRC.
The majority of businesses affected by these proposals will be non-compliant SME’s and sole traders not declaring their full income or not declaring it at all.