Tax crackdown on internet based businesses

Businesses that trade online may face increased scrutiny from the tax man as HM Revenue & Customs (HMRC) considers a crackdown on tax evasion.

HMRC says it wants to target businesses that have failed to register for tax, as well as individuals who do not declare the money they make from online sources. This "hidden economy" is estimated to equate to £5.9 billion a year in tax that's currently not being paid.

A consultation has been launched to look into how HMRC can extend its powers to collect the extra data in needs from firms and individuals.

Although no specific companies have been named, the BBC reports that sellers working on online marketplaces like Gumtree, Airbnb and eBay could be among those targeted.

The power of bulk data

HMRC has published its consultation document online. This explains that data plays an important part in detecting who is not paying tax. Current legislation already allows HMRC to access certain data, but it says it wants to increase the breadth of its scope.

The consultation document explains: "Data can be particularly powerful when it is collected from third parties who facilitate trade, either between businesses, or between businesses and consumers."

It adds  that third parties can provide information in bulk about the activities of a large number of traders. "Third party data can be used as an independent check against the data that taxpayers themselves report to HMRC," it says.

HMRC's extended powers would most likely affect businesses that act as intermediaries, or which provide electronic payment services.​

The department also noted that its new efforts would focus on businesses that failed to pay tax – individuals who sold personal possessions online would not be targeted.

It also pointed out that those who were already tax compliant would see "little or no impact".

"Effective tackling of the hidden economy will ensure a level playing field between those businesses and individuals who comply with their tax obligations and those that do not," the consultation document said.