Buying and selling goods online

The latest round of HM Revenue & Customs’ campaigns against tax evasion is the e-markets Disclosure Facility. This targets taxpayers who should be paying tax on income they earn from buying and selling goods direct to others using online marketplaces like eBay.

If you have been selling goods online you need to decide whether it constituted trading and whether you should have included the associated income and expense on previous years’ tax returns.

If you do need to disclose trading activity, as a first step you should notify HM Revenue & Customs of your intention to make a disclosure by 14 June 2012.

You can do this by completing an online notification form.

An actual disclosure, together with an arrangement to make payment of all tax, interest and penalties due must be made by 14 September 2012.

Making a disclosure using the e-Markets Disclosure Facility can greatly reduce the amount of penalties due and should avoid the possibility of criminal investigations taking place. Most disclosures will be subject to a maximum penalty of 10%.

If you’re concerned that you might have been trading online and might need to make a disclosure, then contact us today to discuss your situation.

Facebooking a tax investigation

Facebook has 901 millions users, and more than half of those access their Facebook page daily. A lot of you will be Facebook users. So does this create any tax risk?

Yes it does.

There has already been one Tax Tribunal case (Nineham v HMRC) in which HM Revenue & Customs used information available on the internet to determine that a taxpayer had undeclared earnings.

Mr Nineham was a musician and DJ who rocked all over the world. He was paid by cash and cheque.

Unfortunately he neglected to declare the cash he received for bookings in Australia and Japan. Even more unfortuntely for him, internet searches showed he had definitely performed in those countries during the period hehe was there. Mr Nineham also kept poor accounting records in respect of his UK bookings and expenses.

The Tribunal considered Mr Nineman’s evidence but rejected it, accepting in full HM Revenue & Customs’ estimates of undeclared income.

The tax years examined in the Nineham case pre-date Facebook, which was launched in 2004. So the dangers of talking about business activities online have increased exponentially.

It’s probably also worth sorting out your ever changing Facebook privacy settings!

If you are unlucky enough to be selected for a tax investigation, HM Revenue & Customs now has access to rather more information than just your bag of receipts.

In particular online marketplaces provide strong evidence that people are trading, which can be compared to Tax Return records. HM Revenue & Customs is currently running an e-marketplaces campaign to encourage online traders to declare their earnings. The deadline for registering to disclose under that campaign is 14 June 2012.

To provide the back-up data for prosecution of e-traders HM Revenue & Customs have issued information notices to a number of online market places. These notices require the recipient to provide a list of all registered sellers including; name (and ‘username’ for online sales), address, postcode and VAT number if relevant. The notice doesn’t ask for the value of sales undertaken by each seller, so the data collected is likely to contain a lot of people who have made only a few sales. This will not stop HM Revenue & Customs from asking difficult questions.

If you are a frequent ebay seller, or even take part in a band, perhaps it’s time you considered whether this income should be declared on your Tax Return.

Reducing the risk of tax investigations

HM Revenue & Customs has changed its structure to focus on tax enquiries as a way of increasing revenues. As well as launching industry specific campaigns, the risk of individual businesses being selected for enquiry has never been higher.

An enquiry can cause a great deal of personal stress and can incur a lot of professional fees in fighting your case, even if you have nothing to hide.

How can you protect yourself against a Revenue enquiry?

Here’s my advice.

1. Keep up to date. Filing late increases your chance of an enquiry. If you are preparing a tax return that is several months old, how can you be sure it is accurate?

2. Pay your tax on time or, if you cannot settle the amount due, speak to the HM Revenue & Customs as soon as possible to explain your position and try to agree a payment plan.

3. Keep very good accounting records. You should have these anyway to run your business effectively.

4. Keep a diary and note down any exceptional transactions. You may have made a sale at a very low mark-up, or there may be particular reasons for a very profitable sale. Your accounts for tax purposes show only annual figures; results that are different from earlier years could lead to an enquiry. A note made at the time is very powerful in defending your case and is an excellent memory jogger to explain fluctuations in profits.

5. Do not talk about your tax affairs to anyone other than your accountants. HM Revenue & Customs does act on ‘tip offs’ from members of the public!

6. Always speak to your accountant or tax adviser if you are unsure about something.

7. Consider fee protection insurance to cover the cost of professional fees to deal with a Revenue enquiry.

Even if you are completely innocent, you could still be the subject of an enquiry.

Despite taking every effort you can still be the subject of an tax enquiry.

The article linked below still gives excellent advice on what to do if you are experiencing a tax enquiry.

Daily Telegraph article

Fee protection insurance

The problem with any tax enquiry is the cost of dealing with the enquiry. Typical tax enquiries require 19 months of professional representation and cost at least £5,000.

We have devised a new service in conjunction with one of the UK’s leading fee protection insurers. This service provides you with an expert technical defence from tax specialists and enables us to:

Provide you with full professional representation in the event of a tax enquiry

Deal with the tax authorities on your behalf

Handle all correspondence and meetings with the tax inspector and negotiate the best possible result for you

More information about the service is available on request but please let me know if you have any questions.

I strongly advise that all clients subscribe to the service due to the increasing risk of enquiry.

Directors or partners of a subscribing business will automatically get protection for your own personal Return, making the annual fee excellent value for money.

The protection includes VAT and PAYE enquiries as well as Income Tax and Corporation Tax enquiries.

Please contact us to join the service.

Countless businesses are forced to surrender to HMRC’s demands as they cannot afford a proper defence. Subscribing to this Service ensures that you’re not one of them.

An HMRC Horror story

Elsewhere on the site we outlined the terrible experience of DJ Louise Stones who made the mistake of relying on HM Revenue’s advice rather than engage an accountant.

Now we’ve found an even more horrible story (warning – contains strong language).

Radio 5 Live’s Victoria Derbyshire took a call from a business man who had been the receiving end of an HM Revenue Tax Investigation.

The call was from Danny who, 10 years ago, was chosen for investigation by HM Revenue & Customs into accounts at his successful consultancy. He began his story composed, and given that it was all a decade ago, you assumed he would stay that way. But then, after one and half minutes, as he got to the bit about spending two years and £58,000 to prove that he had done nothing wrong, he cracked. It sounded as if another man was speaking now and, in one sense, it was: the man after an investigation he described as “brutal“.

It wasn’t just how he spoke, but the bleakness of what he was saying. “I was once a very proud man,” he said. “Now I take antidepressants and I don’t work any more. They ruined me…”

If Danny has been correctly advised and had professional support he may never have been subjected to this stressful enquiry. Even if he was, that support could have brought matters to a quicker and more satisfactory conclusion.

Danny shouldn’t even have had to worry about fees for dealing with this. We offer Tax Investigation Insurance that indemnifies you against the cost of dealing with any HM Revenue & Customs enquiry.

Buying and selling goods online

Facebooking a tax investigation

Reducing the risk of tax investigations

An HMRC Horror story

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