Two recent developments highlighted the somewhat unpredictable way in which HMRC often works. Although we are accustomed to the practice of them giving with one hand and taking away with the other, this latest development managed to combine these characteristics in a very random way.
Last week, we heard news of a U-turn by HMRC; that they would be waiving the £100 penalty fee for over 850,000 of the 1m taxpayers who were late in filing their self-assessment tax returns last January. This reprieve is for those who have already submitted their return, appealed against the penalty in writing and declared they are able to satisfy HMRC’s ‘reasonable mitigating excuses’ criteria for late self assessment filing. HMRC has said they are doing this to dedicate more resources to catching more significant tax avoiders and settling larger outstanding debts instead.
The announcement will be particularly welcomed by small business owners and individuals who despite best efforts, ended up sending in their tax returns after the 31st January deadline. According to the Daily Telegraph which published a leaked memo explaining the policy, HMRC said: “we have decided to take a more proportionate approach where a customer has filed their return late, and then appealed against their penalty ….. in the vast majority of cases we will be accepting the customer’s grounds for appeal and can cancel the penalty.”
Magnanimity aside, there’s a very practical rationale at play here. In order to manage the extra workload caused by self-assessment, it has been necessary for HMRC to employ thousands more staff and divert employees to bolster customer service teams. These additional resources are as essential to handling the volume of appeals made as they are to processing returns. According to the FT, around 200,000 people were late filing in January 2015 because although they tried to file online, they did not press the submit button to register the documentation. This is likely to be classed as a ‘reasonable excuse’, together with serious illnesses, bereavement and postal service delays.
And he taketh away….
Having now covered the news of HMRC’s ‘giving’, we come to the new instance of ‘taking away’. We have written many times about the ways in which sources of additional income of taxpayers are monitored by HMRC using external sources. However small these extra sums of money may be, any earnings generated from income that falls above an individual’s tax-free personal allowance, which is currently £10,600, are taxable. Some income will have had basic rate tax deducted at source, and some will not.
HMRC’s enhanced legal powers mean that banks, landlords, professional bodies and insurance companies are obliged to provide HMRC with their customer records, to enable actual and declared income levels for individual taxpayers to be monitored. HMRC’s information sharing ‘net’ has recently widened further to include online marketplaces like eBay, Amazon, etsy and Gumtree. These websites must, if requested by HMRC, provide customer account details, including selling activity information.
Many people occasionally use sites like eBay and Gumtree to sell unwanted items, this is not the core focus for HMRC here; they are more interested in unearthing professional ‘hobbyists’ and people conducting a trading business. For example, it is likely that those who have registered for a business account on eBay or Amazon will elicit further investigation.
So far, 14,000 letters (known as Accelerated Payment Notices or APNs) have gone out to traders of all sizes who are suspected of running a business through an online marketplace without declaring it on their tax return. Some of these individuals will already have been highlighted as potentially understating their income levels on self-assessment forms. It is important to act quickly if you receive an APN . Anyone who receives and ignores one of these notices will face an automatic tax charge, whereby HMRC calculates the amount of tax due including any penalty charges and interest, and this will be payable in three months. New legislation within the 2014 Finance Act has given HMRC the right to demand taxes to be paid even if a dispute or appeal into the matter is ongoing.
If you are concerned that you might be running what HMRC deems to be a business via an online marketplace and want to discuss making a voluntary disclosure please contact Lesley Stalker by emailing: las@rjp.co.uk.