Tom Herbert of AccountingWEB’s business editor writes that “HMRC is hitting smaller ‘eBay style’ internet traders who underpay their tax with tougher penalties than larger businesses, according to new figures released by Moore Stephens.”

Figures from the Top Ten firm showed that online retailers fined for unpaid tax under HMRC’s ‘deliberate defaulters’ programme faced average penalties (on top of the underpaid tax) of 59% of the tax owed, compared to the overall average of around 35-50%.

However, AccountingWEB were advised by a spokesperson from HMRC, that the firm had reached this figure by analysing just five cases, says Tom.

Lack of awareness

Many small-scale traders using online outlets such as eBay, Amazon and Alibaba may be unaware they have to pay tax on their activity, or believe their earnings will fly under HMRC’s radar.

From April 2017, online retailers are allowed to earn up to £1,000 annually without being taxed, but many quickly outgrow that exemption.

Moore Stephens partner Dominic Arnold, believes that the Revenue is cracking down on such traders with ‘full force’.

“HMRC has given due warning to online traders that they are in their sights,” said Arnold. “In HMRC’s eyes there can be no excuses for not declaring online businesses. However, many sellers might not consider the fact they should be paying tax and are not even registered with HMRC”.

Recent examples of cases flagged by Moore Stephens included:

  • An online car accessory retailer from Bradford who defaulted on tax worth £71,738 between 2011 and 2014 faced penalties worth £50,217 – 70% of tax owed
  • An online sole trader antique dealer from London who defaulted on tax worth £26,399 and faced penalties of £17,555 – 66% of tax owed
  • An online retailer of mobile phone accessories from Leicester who defaulted on tax worth £31,418 and owed penalties of £20,343 – 65% of tax owed
  • An online retailer from Glasgow whose tax defaults totalled £34,176 and faces penalties of £20,335 – 59% of tax owed
  • An online textile retailer from Manchester that defaulted taxes worth £62,702, faced penalties of £35,113 – 56% of tax owed

Reacting to the figures an HMRC spokesperson said: “We are clear that everyone must play by the same rules, and pay the taxes due under the law. This applies to online trading as to more traditional platforms. When you are selling goods for profit, HMRC must be notified through the trader’s tax return.

“Our penalties are focused on the minority of people who try to get around the rules. Our most recent figures show that last year HMRC brought in a record £26bn in extra tax for our public services, money that would otherwise have gone unpaid.”

Card transaction programme

HMRC opened a new “card transaction programme” disclosure facility this March. The scheme is designed to offer lower penalties to businesses volunteering potential under-payment information.

However, Moore Stephens cautioned that because HMRC extracts data from businesses that process debit and credit card transactions, it remains relatively easy for the Revenue to track down even the smallest of organisations that fails to pay the right amount of tax.