Tuesday, June 14, 2011

HMRC robots to catch out online traders

It's more than two years since I reported on HMRC investigating posts on social media.

Now it seems that HMRC are using sophisticated web robots to track users of ebay and other online trading platforms. The objective is to trace people who are trading but not reporting their taxable profits to HMRC. This counts as tax evasion but don't worry if you only sell a few items as you are unlikely to be classed as trading so will not be liable to tax or targeted by this campaign.

In HMRC's latest news release they claim that:
"The “web robot”, used with the department’s 'Connect' computer system, also helps find people who are trading without telling HMRC.

'Connect' alerts HMRC to previously invisible tax evasion by matching a vast amount of HMRC and third-party data, enabling a fast and focused response to tax evasion. It shines a light onto previously hidden relationships, uncovering anomalies between such elements as bank interest, property income and lifestyle indicators before homing in on unexplained inconsistencies."
Do bear in mind that there are inbuilt delays in our tax system. The web robots may be doing one or both of the following:

1 - Looking back to track what happened in 2009/10 and then comparing this with what was disclosed on tax returns for that year;

2 - Looking at what has been happening since 6 April 2010 so that this data can be compared in due course with tax returns for 2010/11 and 2011/12 when these are eventually submitted.

On balance I suspect the news release is intended to scare taxpayers into future compliance. Anyone who may have been planning to omit reference to online trading activities since 6 April 2010 may now be persuaded to report them properly on their tax returns. The return for the period 6 April 2010 to 5 April 2011 needs to be submitted by 5 October 2011.


  1. For someone trading online the obvious way of submitting a tax return would be online, in which case the submission date for the 2010/11 SA tax return is 31 January 2012. However, for those not already within self assessment the date for informing HMRC of a new source of income in 2010/11 is 5 October 2011.

  2. A couple of years ago I had some clients approach me as they were concerned HMRC might target them for in-line trading of jewellery. We produced accounts for a number of years proving they made a loss every year; effectively it was a hobby. I wrote to the local office, no longer there, and they agreed no accounts or tax returns needed to be sent to them. Whether HMRC would go so quietly if it were an issue they had found for themselves remains to be seen.