Tax Investigations and E-Trading

Tax Investigations and E-Trading

If you are trading on the internet and not making a return of this income be aware that HMRC tax investigations are very much on the increase.

Investigations of internet traders are very much at the forefront of HMRC compliance latest compliance drive. The taxman has recently intensified his HMRC compliance check approach in an effort to identify those operating in the hidden economy.

In this ever developing internet dominated world, e-trading of some description has become second nature to most of us.

So when does a perceived innocent "hobby" become a taxable source of income and thus become the focus of attention for HMRC investigations teams?

What are the implications of the latest HMRC compliance check initiatives when it comes to trading on the internet?

The first question to consider carefully is does e-trading impact on your income tax affairs.

Firstly let us look at the definition of trade within the tax legislation. Obviously this is key when considering the risk of intervention by an HMRC tax investigations officer.

What principles do HMRC apply?

Does the income give rise to a charge to tax?

Has the income been returned?

If the answer to both questions is no, then HMRC tax investigations will almost certainly look to begin a compliance check.

What is the definition on HMRC law of a trade, profession or vocation

Strictly there is no statutory definition of trade, profession or vocation. The Taxes Act is quite specific about this. This means that as far as HMRC are concerned the terms take on the everyday meaning.

Common sense you may think? But this is not necessarily the case. As with the interpretation of any piece of legislation, particularly tax legislation, the lines are often blurred by ambiguity.

When considering the term trade the legislation says this:

A taxable source of income will normally arise when a "commercial operation is conducted by a trader who provides goods or services to his or her customers in exchange for a reward"

Should I be registered with HMRC?

In short, if you are engaged in activity which results in the exchange of goods or services for any type of remuneration (regardless of size or scale) then you should be registered with HMRC. If not you are coming under the HMRC tax investigations microscope.

HMRC tax investigations teams now make use of very sophisticated software which scours the internet for those who may not be paying their taxes.


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Tax Investigations based on e-trading have rocketed in the past 18 months and we can only see HMRC intensifying their efforts.

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