Taxman takes on the hidden economy

New freelancers unsure about when to declare income and register with HM Revenue & Customs risk being caught by a new clampdown on the hidden economy.

In fact, HMRC says it will make it “increasingly difficult” to enter and operate in the ‘hidden economy’ – defined as ‘traders who fail to register for tax and people who fail to declare a source of income.’

Tim Stovold of accountancy firm Kingston Smith confirmed yesterday: “Where HMRC uncovers trading profits which have not been declared, they will be unsympathetic to a plead of ignorance of the rules,” he said.

For aspiring and new freelancers, this unforgiving stance by HMRC may prove problematical – not to mention costly, in terms of financial penalties.

Indeed, questions about what to declare and when, especially from employees who want to start freelancing on the side of their 9-to-5 job, are among the most submitted to FreelanceUK and its forum.

Yet fortunately such enterprising individuals are not the primary targets of the consultation. Rather, HMRC is proposing to extend its powers so it can gather data from ‘third parties’ who may be unwittingly supporting the hidden economy.

These third parties, notably electronic payment providers and business intermediaries such as advertising boards, app stores and other digital platforms, seem to be allowing individuals and small traders to generate income below the Revenue’s radar.

So the tax authority is taking action. To explain its need to data-grab from business intermediaries, HMRC said:

“Where a business is using an intermediary to offer goods and services, HMRC believes that the intermediary will be able to provide valuable information that can identify sellers that have not registered with HMRC or who have not declared the full value of their sales.”

As to e-payment providers, it said: “To ensure that these methods [‘digital wallets’ and other payment models not covered by HMRC’s existing data powers] do not become a natural hiding place for those wishing to evade tax…HMRC [proposes] to receive aggregated and/or transactional level data from these and other newer types of payment provider.

“In doing so,” adds the consultation, “HMRC proposes that the legislation is ‘future-proofed’ so similar data can be requested from new business models as they emerge.”

By granting HMRC these data powers, it is estimated that they will help towards raising up to £285million from the hidden economy in 2020-21. Affected parties can have their say (and potentially answer the consultation’s 8 questions) by emailing their comments no later than October

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23rd July 2015

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