According to research, HMRC is imposing harsh penalties on online retailers also known as ‘deliberate defaulters’ who underpay their tax. On average, these small scale online retailers face penalties of 59% of the tax owed which is payable on top of the underpaid tax. This is in comparison to the normal penalty of 35%-50% of the tax owed.
One of the affected online retailers is an online car accessory business in Bradford. The online retailer defaulted on tax worth £71,738 between 2011 and 2014 and faced penalties worth £50,217 which is 70% of the tax owed.
Another online retailer that has been affected is an online textile retailer from Manchester who defaulted on tax worth £62,702 with 56% penalty (£26,399) whilst an online sole trader antique dealer in London defaulted on tax worth £26,388 and faced a penalty of 66% (£17,555).
The research also mentioned that a number of small scale and individual online retailers who use online websites such as eBay, Amazon, and Alibaba may be uninformed that they have tax to pay on their online trading even though HMRC has been pursuing online retailers who fail to declare their earnings.
HMRC has been obtaining data from companies who process debit and credit card transactions which make it easier for them to track down online retailers that are underpaying tax. They have also issued a new ‘card transaction programme’ in March 2017 which is a disclosure facility that could result in lower penalties being applied for those who come forward voluntarily.
From April 2017, online retailers are allowed to earn up to £1,000 annually without being taxed.