EBay, in particular, is in the sights of HM Revenue and Customs (HMRC), whose recent announcement that it intends to pursue individuals and organisations who are trading on the site, but who have not paid enough tax, as part of a drive to raise £7 billion during the current parliament by tackling tax avoidance, evasion and fraud.
HMRC say the popularity of the online marketplace has soared in recent years as the squeeze has tightened on household finances.
What was once a useful format for people to sell off unwanted items on a one-off basis has evolved into a platform for traders with large stocks of goods, some of whom have failed to declare the proceeds.
Sophisticated technology will be used to catch out people and companies breaking HMRC rules, failing to pay the right tax or trading illegally.
In addition to its conventional techniques, HMRC has said that it will use a new 'web robot' that is designed to identify inconsistencies between an individual's stated financial situation and their lifestyle. The new software will gather data from a huge range of sources and compile that information into individual profiles.
HMRC hopes it will be able to use this information to identify people who are living in a way that suggests they are not declaring all of their income.
This is the latest in its series of industry-specific crackdowns. The tax body announced last month that a campaign will be launched in the summer targeting VAT rule-breakers trading above the £73,000 turnover threshold who have not registered for VAT.
As with similar recent campaigns, there will be an amnesty period over the next few months with voluntary disclosers earning better terms, followed by a concerted crackdown on those who fail to come forward.
During the amnesty penalties are likely be capped at ten per cent of the tax outstanding, whereas those failing to come forward face fines of between 35 and 100 per cent of the unpaid tax, plus the amount owed.
There are concerns that the difficulty in distinguishing between those who buy and sell personal goods online and those trading professionally might result in unfair penalties. But HMRC has made clear that it does not intend to target those who sell the odd item on eBay and are unlikely to be liable for tax.
Individuals who think they might be trading should consider seeking advice from a tax adviser.
Similar plans are afoot in the Southern Hemisphere where the Australian Taxation Office has made a formal request for information relating to Australian eBay sellers whose transactions have passed Aus$20,000. The data eBay is due to hand over by August 1 includes contact names, home and email addresses, telephone numbers, user IDs, dates of birth, date of registration on eBay, plus monthly and annual sales volumes.
Four years ago the Canada Revenue Agency successfully gained a court order to demand sales information of all Canadians who qualified as PowerSellers in 2004 and 2005. The data was cross referenced with that filed on tax returns. So far eBay has assisted HMRC only when named records of individual sellers are specifically requested.
By Roland Arkell
