If you make net profits, you're in the taxman's web

Published on Saturday 3 February 2007 00:19

AUCTION website users are the latest to fall foul of Her Majesty's Revenue & Customs (HMRC), as the government launches a crackdown on online traders who fail to disclose their profits to the taxman.

The phenomenal success of auction sites such as eBay has led to a new breed of "armchair" businesspeople, so-called because they conduct their business from the comfort of their home using nothing more than a computer.

And while HMRC insists it will not target individuals who are just disposing of unwanted personal items, accountants and business advisors BDO Stoy Hayward is warning that use of these kinds of sites as a method of trading will not go unnoticed.

Margaret Corless, director of Tax Investigations at BDO Stoy Hayward in Scotland, explained: "HMRC has always had powers to obtain details of individuals who sell goods online.

"However, a new unit has been set up with the specific aim of targeting traders who use the internet and the wider black economy, such as car boot sales.

"Of course, not all traders are operating outside of the law: many internet traders do disclose their profits to HMRC.

"That said, there is a growing number of people who are using the internet as an opportunity to make a quick buck without going through the proper channels."

BDO Stoy Hayward advises traders who are using the internet for these purposes to take action and advise HMRC of their profits immediately - before they are targeted by HMRC direct. By surrendering the information voluntarily, they may qualify for minimum penalties.

Corless added: "HMRC has shown it is fully prepared to use its powers to force companies to provide the information they require to identify guilty individuals - it is no empty threat.

"We anticipate that this crackdown will force black traders to move away from the internet as a means of operating, while so-called 'armchair businesspeople' will need to either play by the rules or not at all."

A HMRC spokeswoman said: "For tax purposes, there is no difference between e-trading and any other type of trading and our compliance approach remains the same.

"If you are trading on a website, your profits may be taxable. Anyone who is unsure about how much tax they should be paying should get in touch with HMRC and we will help them pay the right amount.

"It is our core function to ensure our customers are aware of their responsibilities and account and pay for what they owe, whether it be income tax, capital gains tax, VAT or any other type of tax.

Self Assessment clearly states the taxpayer is legally obliged to declare any gains beyond the individual capital gains tax threshold and all taxable business profits.

"Our inquiries cover all areas where non-compliance may occur, and it would not be correct to identify one as requiring more attention than any other."