As the Guardian notes this morning:
Anyone selling used clothes on Vinted, renting out their home on Airbnb, or getting rid of old camera equipment on eBay is going to come under fresh scrutiny from the taxman, following a crackdown on income earned from online trading.
From 1 January, HM Revenue & Customs will require digital platforms to collect information on how much their users make.
- It undermines effective markets and destroys the chance of real competition.
- It undermines the rule of law.
- It increases inequality.
- It prevents the effective use of taxation as an instrument of government social policy.
- It undermines fiscal policy.
- Tolerance of it creates a criminogenic environment that threatens the stability of society.
- I don't like cheats.
As a result, I welcome this move, which I have argued for in the past.
That said, welcome as this move is those targetted will not be the big tax cheats. The evaders within society are:
- The wealthy who still use tax havens - although this is becoming very much harder to do because of the use of data from automatic information exchange from tax havens, which I campaigned for and helped win.
- Multinational corporations, although again, this is now harder for them to do because of the introduction of country-by-country reporting, which I designed and campaigned for and which is now in use in 80 countries, and the new minimum corporation tax rate worldwide, which the OECD has introduced. Whilst flawed, this is better than anything the UN could deliver for a decade or more.
- The abuse of limited liability within economies.
The last is the biggest cause of tax evasion in the UK, in my opinion. I am certain that hundreds of thousands of companies trade illicitly in the UK each year, and could be detected if only UK banks were required to report to both HMRC and Companies House each year:
- Those companies that they provide banking services to.
- How much they banked in total for these entities each year.
- What their year-end balances were.
- Who they think run these companies.
- At which addresses they think these companies are run from.
If is possession of this data, HM Revenue & Customs could chase all companies that have activity that have not submitted corporation tax returns and Companies House need neve strike off a company that has traded, bit could in stead pursue its directors for data. Remove limited liability from directors in breach of obligations and the chance of recovering funds would increase, considerably.
The systems to provide this data have to exist so that the UK can meet international information exchange obligations, but we refuse to use this data domestically, in the process allowing massive tax fraud to continue whilst picking on casual eBay sellers. In the meantime, these fraudulent companies do not file accounts or tax returns, and every year or so form a new company to carry on their illicit activity, and Companies House then strikes off their old one for them with no questions asked.
I explain these issues and how to tackle them in the Taxing Wealth Report 2024, here and here. I conservatively estimate that addressing this issue might raise £12 billion of tax a year - and probably rather more. So why does no political party talk about doing it? I wish I knew. It is a simple, straightforward low-cost reform that would deliver a massive yield whilst seriously reducing UK tax abuse, which would help all hones traders. What is not to like about that?
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It shouldn’t be too difficult for these types of tax dodgers to be ranked in order of money withheld, and targeted accordingly. It surely makes sense to find those dodging £millions, than those who haven’t declared a few hundred quid.
Precisely
It would also identify a lot of drug trading
The country isn’t run for the benefit of the sensible, it’s run for the benefit of the wealthy. As such, it’s clearly doomed as while the wealthy might be good at making money running a nation requires a different kind of thinking altogether. Such thinking is conspicuously absent from political considerations as our politicians now very evidently exist to service the rich and so are wedded to their illogic and lack of foresight. It’ll all end in tears, and soon. Meanwhile outside our windows hints of the new normal rage around us. Happy New Year? Not quite…
“Limited Liability” is a privilege – it allows people to own a business without fear of destitution if it fails.
With privilege comes responsibility so it is entirely reasonable for the State to require, at a minimum, decent reporting.
Given the infrastructure already in existence surrounding bank accounts to prevent fraud and money laundering (and it IS extensive and largely effective… although it’s a constant battle) it is pretty trivial to scan accounts for the basic data required.
If this is such a simple “win”, who is opposing?
HMRC would love it – without lifting a finger it just gives them a list of likely targets to investigate.
Any Chancellor would love it – always good to “balance the books” by squeezing cheats.
Banks would oppose – it IS more work for them…. but it is pretty trivial. They might also find lots of accounts get closed as companies close under this new regime.
So, what is REALLY preventing this? Clearly, ignorance in Government is a large contributing factor – they just don’t understand business. But, would it be ridiculous to suggest there is (successful) lobbying of government by the cheats?
We come back to dogmatic politicians who think this will hinder markets when actually effective markets depend on this happening.
“HMRC would love it – without lifting a finger it just gives them a list of likely targets to investigate”.
The tricky bit for HMRC is the resource allocation. Do they send the man or the dog to investigate?
Indeed, where will HMRC be finding the capacity to act on this enormous flood of new information? Then there’s this to consider https://www.theguardian.com/business/2023/nov/29/online-marketplaces-report-surge-in-sales-of-secondhand-goods How are people supposed to cope with paying extra taxes when they’re already reduced to selling the furniture to live? This is taking the nation back to the times depicted in The Ragged Trousered Philanthropist, a further step towards the extinction of the Middle Classes while the real parasites, the Upper Classes, sail serenely on. I think there might be some upset about this.
“HM Revenue & Customs will”………..out-source the collection of ……….”information on how much their users make”. (one wonders if this is one step away from tax farming?)
I wonder if there will be filters to distinguish between those selling some underused clothes or camera equipment (offers for my Pentax MX with motordrive etc gratefully accepted) and those making a living from it? £500/year OK, £5000/year – it’s a business?
That said, another way of interpreting this, hinted in the blog is: tokenism. Looks good and outsources the problem whilst failing to address the much bigger problem mentioned in the blog (Ltds). So far, so very very Tokenism Tory.
I am confident that “the loyal opposition” are likewise bereft of ideas/proposals that address the 500lb tax gorilla that is the Ltds.
On a related note, this book (& its review) looks interesting (and seems to deal with “tax farming” in more general terms):
https://bellacaledonia.org.uk/2023/12/27/the-uks-brezhnev-years-and-the-failure-of-the-free-market-utopia/
I sincerely hope they take frequency of transactions into account
Selling the odd item occasionally is not trade
Selling small items persistently is
Will they collect enough data to be sure what they are looking at?
Will they have sufficient resources to collect it; and if they do manage to collect it, who will be left – to look at it? And even then, who would be left to use it?
The Conservatives are duty bound as committed neoliberals, to ensure none of the above ever happens.
The definition of 2020s British Conservative neoliberalism? Squat in Downing Street for as long as you can.
My cynical response is that the tories depend on these people for a significant number of donations, and Labour is scared of calling them out in case it get described as “big brother” in the tabloids.
Why chasing down benefit claimants & micro traders DOESN’T look much more like big brother is beyond me – I don’t see the cost-benefit in allowing HMRC to check millions of small bank accounts, when they could raise billions in missing taxes by checking a few thousand big ones.
But then I’m a statistician not a politician, and they really do need more maths education. That’s the only thing I agree with Sunak about, so far.
You are clearly right
But remember, HMRC check very few accounts at all. The process they are pursuing relies on fear of being found it, not actually finding people out. They don’t seem to think that the two are related.
One might assume that AI fed by automatic data exchange will do most of the heavy lifting in identifying the many small transgressors, whilst fear of expensive legal kickback deters investigation of the big fish…
Maybe Fujitsu can step up with the AI…
Abuse of limited liability also causes significant loss to consumers, for example
https://www.gazetteandherald.co.uk/news/24013244.ad-paving-wiltshire-investigated-trading-standards/
Some sort of OffComp might make it harder to hide behind limited liability in cases of fraud and incompetence
Agreed
But the right to go behind limited liability has to be automatic whenever there are regulatory failings from which a Director has profited. It simply requires a piece of legislation to describe that abuse as fraud requiring the lifting of protection for the director and any shareholder who gained.
They always go for the low hanging fruit don’t they?
It’s gesture politics only isn’t it these days?
Pathetic.
I understood this to be more about benefit cheats than about tax evasion. After all, benefit cheats cost the company a tiny amount, compared with tax evasion.
Richard,
I was reading this article on the Grauniad website
https://www.theguardian.com/money/2024/jan/02/nationwide-froze-my-account-christmas-credit
This might also be relevant to the discussion
https://www.theguardian.com/business/2024/jan/02/fitter-sharps-bedrooms-legal-action-employment-rights
You have said a great deal about how to tackle Tax Evasion and Avoidance as well as how to prevent Financial Crime or Criminals being able to use Financial Services such as Limited Liability, Money Transfer etc.
You are also keen to discourage the use of cash.
Looking in from the outside and obviously being aware that you have limited time, energy etc may I respectfully suggest that this needs to be pulled together into some sort of Strategy?
Simply as a ‘For Example’ in the UBER & now Sharps case we have businesses setting up arrangements which are dubious from a taxation let alone any other point, if we want people to pay electronically rather than by cash we need to sort out the ‘unbanking’ or ‘account freezing’ issues that keep on cropping up. That of course is before we then move on to Limited Liability, Trusts etc etc.
Oh and I might add that there are issues over Third Party Liability Insurance (Just dont ask!!)
The whole thing also needs to be set up in a way that will encourage people to ‘Buy Into’ it rather than seeing it imposed from above.
Yes, its a big ask I know but might be worth doing.
I fear I will not have the time
Whilst you’re on the subject of tax evasion what are your thoughts on so called freeports and free economic zones from what I have managed to glean the prospect is little short of terrifying.
Freeports are privately owned, they are extraterritorial areas inside the geographic boundary of the UK, they are essentially tax havens. Bidding for Sunak’s 12 Freeports closed in 2021.
Sunak’s Freeports come with relaxed laws and by extension relaxed enforcement of those laws. So when illegal activity is committed, weapons trading, drugs, stolen art, private banking, moving/storing of gold, money laundering, human trafficking, scrapping of minimum wage that’s up to the laws of that zone
Sunak’s Freeports and SEZs will install legalized lawlessness. Freeports and Free zones are contradictory spaces, problematising governance, territory, and sovereignty. Sunak’s Freeports are clearly not about freight shipment, which is the main purpose of international ports.
Sunak’s Freeport zones vary in size from 38km up to 75km wide, eg, the Firth of Forth Freeport in Scotland is 38km wide & covers 70% of the City of Edinburgh. The Plymouth and South Devon region includes Dartmoor National Park and is 75km in size.
Labour’s FM Mark Drakeford signed off on 2 Welsh Freeports with Michael Gove and Shanker Singham, (the brains behind Brexit), Singham is a US trade lawyer who specializes in developing (de)regulated governance frameworks for SEZs and charter cities.
There is no evidence to confirm that Freeports encourage economic growth or provide jobs for local people. Freeports in the hands of a right-wing libertarian cartel share similarities to organized crime syndicates.
When the Tories add the word ‘free’ to Freeports, free zones, free schools, free trade, free cities, what they actually mean by free is ‘free from big government intervention and regulation’.
Difference between a Freeport and a Special Economic Zone (SEZ) Freeports are designed to import, process, and re-export goods. An SEZ is a designated region in which a ‘governmental authority’ offers incentives different from the host country’s regular policies, eg laws, taxes.
Its the stuff of nightmares
Try this
https://www.taxresearch.org.uk/Blog/2022/07/25/freeports-are-a-threat-to-democracy-in-the-hands-of-sunak-and-truss/
Will businesses in the Freeports be granted access to utilities at special rates, do you think? I can see the attraction to business of removing rights for workers but that wouldn’t, I’d imagine, make relocating a business from abroad to a UK Freeport feasible on its own when utility rates are so high by comparison with other nations.
Who will pay the subsidiy?
I’m assuming govt on the basis they’re the ones trying to attract foreign investment. I don’t know if it’s credible to suggest that though, which is why I broach the subject.
I think it pretty unlikely that will happen.
My understanding is that Freeports are a way to circumvent all British laws and taxes because they fall “outside” of Britain.
The claim will be that it benefits business and the economy. The reality is that it will benefit only those the owners, and exploit people and the economy.
We’ve already seen the start of how things will be played out. “Teesside Freeport: Was valuable land sold to developers for just £1 per acre?”, The Yorkshire Post, 12th May 2023, https://www.yorkshirepost.co.uk/news/politics/teesside-freeport-was-valuable-land-sold-to-developers-for-just-ps1-per-acre-4139474
The reality is that Freeports do at present provide very limited exemtpoions from taxes – like rates and employer’s national insurance. They do very little else. I am not saying they could not bcome more toxic – they could be a Trojan Horse – but their biggest danger is from planning and maybe environmental regualtion right now.
HMRC is under-resourced to a simply astonishing extent. I believe it’s deliberate. The UK is deeply, fundamentally, institutionally corrupt.
Anyone in any doubt should read
Moneyland and Butler To The World, both by Oliver Bullough
Kleptopia by Tom Burgis
(all available in paperback)
Reports by Transparency International, The Transparency Task Force, this blog etc.
Plus
https://youtu.be/np_ylvc8Zj8?si=g8wMFi2V5B4i7C1e
The issues are all well known and documented but the UK is structurally organised to prevent them being addressed.
I am working on this issue right now
“I believe it’s deliberate.”
This is the clever bit in Conservative Neoliberalism. They know that legislation draws attention to special pleading and the opportunity legislation provides for the corporate rip-off; therefore, don’t legislate. Just make sure the legislation that is there doesn’t work. They deprive the application of the legislation (HMRC, building regulation ….. you name it). If they can’t kill the regulator of the legislation off altogther (somebody might notice); they just slowly deprive it of the resources to do the job.
The end game is to make the regulator a centre of ridicule through its failure; and then they can terminate it; and if there is a ‘buck’ to be made out of anything left, privatise it for a corporate functionary to fill forms and tick boxes; but do nothing.
Spot on, John. That is the plan.
The tabloids endlessly call it “Red Tape” and deplore it whenever anyone protests. Who was there to apply the legislation on building cladding, to prevent a Grenfell? It is so easy to rubbish everything that actually protects people from a rip-off, or from actual physical harm (food standards, consumer devices, building regulation, tax investigation); as mere ‘Red Tape’, in the coarse echo chamber that passes for British political discourse. It is all deeply ignorant and perverse; but it is what we have done, and it has brought us to the utter mess we have made of Britain.
Sounds to me as if they’ll be putting the current governor of the BofE in charge of it then.
My suspicion is that the reason for not going after those who abuse limited liability is that it would be a vote loser.
I have come across people who object to paying taxes (and I suspect evade doing so), but also want there to be decent schools and healthcare and benefits if they or their relatives fall on hard times. They vote Tory mainly because the think that, on balance, they are personally better off.
I have no idea how large this demographic is, but I suspect it is significant in areas like Essex, where I grew up. If a Tory government did anything about this then they would likely loose their vote, although many would likely not vote at all rather than vote for another party.
Of course the same concerns should not bother a Labour government since Labour will not be able to win their vote by preserving the status quo. However the current Labour Party does’t seem to have a clue about anything.
Mr Hurley,
I think that is a very perceptive comment, if I may say.
Thanks
We sell stuff we have previously bought on eBay. If we are assessed for it where does the original costs fit into any assessment? We rarely make more than the original cost but because that may some time ago we use the sale receipts towards holidays etc. Never thought of it as tax evasion as these are things we bought.
If it’s an be shown to be the sake of a previously owned chattel there is a capital gains tax rule to exempt most such sales
Interesting question
And what about someone who has inherited (or been gifted via a friend) a valuable collection of coins, say, or stamps, or model railway equipment and want to sell it off on an online auction site?
Where do they stand with regards to this new legislation?
What you have to show is you are not trading. For most people that is not hard, but I stress, selling a collection at a profit can also be a capital gains tax event.
I imagine this means the dark web version of Ebay will soon be with us, that’s if it isn’t already. What other response does the govt expect? Oooh, Googling, I find there was one already which got taken down, details here
https://www.newyorker.com/news/news-desk/the-takedown-of-a-dark-web-marketplace# No doubt there will be/are more.
Thanks for your reply Richard.
Do you know if this HMRC clampdown on small online sellers will be retrospective, ie will the taxman go back farther than the January 1st start date when looking into people’s affairs?
If they find evidence of reading now it is highly likely that they will, on investigation, look at earlier years. That would be normal. Up to six years is commonplace.