In the past, individuals have tried to avoid paying tax by attempting to hide their online sales activity from HMRC.
HMRC has shown that it possesses robust information gathering powers, enabling the authority to directly access data from major UK marketplaces like eBay and Amazon.
This is especially evident when there’s an inkling that a taxpayer may have concealed accurate information concerning their sales on these online platforms.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- How HMRC uses data from major UK marketplaces like eBay and Amazon to track concealed online sales and prevent tax evasion.
- The importance of maintaining clear VAT records and seeking expert advice, as demonstrated by the Adspec Ltd case with HMRC.
Case Study Example – Adspec
Origins of the Suspicion
Adspec Limited, a company dedicated to importing electronic tablets and accessories from China and selling them to UK consumers via Amazon, eBay, and their own website, came under scrutiny.
Through a meticulous review of Adspec’s import data contrasted against its declared turnover in VAT and Corporation Tax returns, HMRC’s suspicions gained traction.
HMRC verified a vast number of undeclared online sales, evident from the company’s eBay data, further deepened these suspicions.
HMRC consequently issued assessments and penalty notices.
These notices spanned accounting periods from 3 March 2014 to 31 March 2015 and VAT quarters from 4 March 2013 to 31 December 2015.
The main thrust behind these assessments was the belief by HMRC that Adspec had significantly underreported its imported goods figure, which implied that their sales might have been understated as well.
Despite HMRC’s requests for the company to share their records covering the periods under investigation, Adspec failed to do so.
The total tax implications amounted to a staggering £316,053, with penalties reaching up to £193,585.
Moreover, a Personal Liability Notice (PLNs) was handed down by HMRC, making these penalties a direct personal liability for Mr. Adil Hussain, the company’s director.
The Tribunal Proceedings
Mr. Hussain took his grievances to the First Tier Tribunal (FTT). Among the contested issues were:
- The accuracy of trading profits and receipts in the given periods and whether their omission was intentional.
- Whether VAT relevant sales had been intentionally hidden.
- Disputes over the actual date Adspec should have registered for VAT and any associated penalties.
- The question of Mr. Hussain’s personal liability for the company’s penalties through the PLNs.
The FTT deduced that Mr. Hussain intentionally withheld crucial information.
The only documents HMRC managed to receive were a few bank statements from PayPal, which Mr. Hussain had claimed was the primary business account.
The FTT found this claim unconvincing.
Both HMRC and the FTT concurred that their assessments were reasonable, drawing from the limited data they garnered from eBay.
Delving Deeper
The use of rounded figures on bank statements raised eyebrows, as they weren’t clear representations of the actual amounts received on the PayPal account.
These would be net of fees, skewing them closer to profits than pure turnover.
Without supportive accounting records, it became impossible to verify these figures in their entirety.
Mr. Hussain contended that HMRC should have sought more third-party data.
However, the FTT reinforced that it was the taxpayer’s responsibility to corroborate their claims.
Several other counterarguments were presented by Mr. Hussain, ranging from potential reductions for postage and faulty goods to queries about where the alleged additional funds were stored.
Yet, the FTT remained unconvinced.
Outcome and Implications
The possibility of deliberate actions by a company officer causing tax loss made the issued PLNs valid, with looming insolvency fears for Adspec.
Despite Mr. Hussain’s objections, the FTT found the evidence compelling and dismissed the appeal.
Although Mr. Hussain’s intentions – whether they were purposeful omissions or inadvertent errors stemming from proclaimed mental health challenges – remained ambiguous, the lack of supportive documentation tilted the scales in HMRC’s favour.
Declaring VAT and Keeping Online Sales Records for HMRC
Declaring VAT is a key step for businesses.
It’s all about giving the right details about your sales and how your business operates.
Once you’re declaring VAT, it’s vital to keep clear records of all sales that include VAT.
This helps if there are any checks or questions about your business down the line, similar to the case of Adspec Ltd.
If things don’t add up, it can lead to fines, hefty tax bills, or even liquidation of your business and assets.
By getting help from www.taxexpert.co.uk, businesses can make sure they’re keeping records correctly, declaring all of their sales and records according to HMRC, and therefore staying on the safe side.
So, it’s simple: register, keep clear records, and if in doubt, ask for expert advice.
Final Thoughts
HMRC’s potent information gathering capability means that they can access comprehensive details of products listed and sales made on e-commerce sites.
Coupled with import data, this becomes a formidable tool for tracing tax evasion, as demonstrated in Adspec Ltd’s case.
For those navigating the complexities of such investigations, the importance of early and expert advice cannot be overstated.
Proper representation and negotiation with HMRC are crucial.
If you’re facing similar investigations, get in touch with us at www.taxexpert.co.uk, where our team of professionals stands ready to provide valuable guidance and representation.
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
Sending an e-mail is simple too, just fill out this short form and we’ll get back to you!
Kind regards,
Ilyas Patel