HMRC targets digital ‘intermediaries’ with new data-gathering powers

It also intends to extend its powers to gather data from merchant acquirers to cover newer payment models, such as digital wallets, in addition to data relating to cash, credit and debit card transactions. In a consultation on the proposals, it said that it intended to “future proof” any new legislation to ensure that similar data could be requested from new business models as they emerged.

The intention behind the proposals is to make it easier for HMRC to track down businesses that fail to register for tax. According to HMRC, this ‘hidden economy’ accounts for 17% of the total tax lost to the exchequer each year; an estimated £5.9 billion that would otherwise have been collected in 2012/13 alone.

“Data about taxable activity plays a key role in enabling HMRC to detect those operating in the hidden economy, and to target resources to tackle them more efficiently,” it said in the paper.

“Data can be particularly powerful when it is collected from third parties who facilitate trade, either between businesses, or between businesses and consumers. This is because they can provide information in bulk about the activity of large numbers of traders, and because third party data can be used as an independent check against the data that taxpayers themselves report to HMRC … Targeted data-gathering powers also minimise the burden on businesses, obtaining data in bulk from a few sources rather than imposing broad-based reporting requirements,” it said.

HMRC is seeking views on how best to implement the extended powers while minimising compliance costs to businesses, how often it should be able to request data and what format data should be supplied in. The consultation ends on 14 October.

In 2013, HMRC obtained new powers to collect up to four years’ worth of “relevant data” from merchant acquirers, which are the businesses that process credit and debit card transactions. The data helps it to identify traders that are receiving income but are not registered for tax, as well as those who are registered but who under-declare their income to HMRC. It is these powers that would be extended to “electronic payment providers” and “business intermediaries” under the plans set out in the consultation.

By extending its powers to electronic payment providers, HMRC intends to catch businesses that perform a similar function to merchant acquirers (who are obliged to share data under existing legislation) but in relation to digital monetary transactions. By ‘business intermediaries’, it intends to capture a wide variety of predominantly digital facilities that handle transactions and route custom through to taxpayers including advertising platforms, ‘app stores’ and booking and reservation sites.

The type of data HMRC would require from these intermediaries would depend on their business models; but could include the names and addresses of sellers, advertisers, developers or goods or service providers, any relevant tax identification numbers and gross values of transactions and contact visits facilitated by the intermediary.

HMRC would use this data to identify businesses in the hidden economy and businesses that are under-declaring their income, and would not use it to collect information relating to the intermediary, according to the consultation. It does not intend to use it to collect information about payments made by individuals, or to analyse payments received “not through business activity, for example electronic transfers of money between friends”, it said.