In 2013 HMRC were given new powers that allows them to make more targeted enquiries into businesses whose income has not been declared or has been understated. One such power is the ability to access transaction records for card sales from merchant acquirers, who are obliged by law to pass on the information to HMRC.
The 2013 Finance Act gives HMRC the power to access information about credit and debit card payments to traders. HMRC can request information on amounts paid by the customer, but they won’t be given any personal details relating to the customer. The new rules apply from 1 September 2013, but HMRC is able to ask for information about previous years.
So if you’re in business and haven’t told HMRC about all of your sales then now’s a good time to come clean.
How does it work?
For example, John runs an online health shop and takes his payments by card. HMRC now has the powers to contact the card processing company to ask for details of transaction amounts relating to credit and debit card payments from his customers. The card processing company must pass John’s business records to HMRC.
HMRC then check the records against other information that they’ve been supplied about the business to establish whether it matches up. If they find that John’s business isn’t registered or that he has understated his sales then he could be in serious trouble.
What will HMRC do with the data?
They’ll check the data against any previous returns submitted by the business, usually for the last 4 years to ensure that it is up-to-date and accurate. They’ll also use it to check the affairs of businesses who aren’t registered with HMRC.
If it turns out that the business isn’t registered with HMRC, or is registered but under-declaring their income, then HMRC will contact the trader. Worst case scenario for people in this position is that, HMRC may prosecute, but a more typical outcome will involve a hefty bill for unpaid tax, interest and penalties.
The perfect reason to check that your records are up-to-date
Good business records are critical in helping you show that what you’ve disclosed to HMRC is accurate and has been fully recorded. You need to ensure that you’ve kept a record of things like your daily cash sales, invoices and explanations of everything received into your business bank account. Visit the HMRC website at http://www.hmrc.gov.uk/sa/rec-keep-self-emp.htm#1 for guidance on what you need to record.
What to do if you’re worried
If you know that you haven’t disclosed all of your income to HMRC, or you haven’t told them that you’re trading, then you need to do that as soon as possible, but it’s probably a good idea to get specialist advice as soon as possible.
When disclosing information to HMRC you need to make sure that what you tell them is as full and complete as possible when you initially speak to them. It won’t help if you only tell them part of your information, or change your story as you go. Meet with your tax adviser to confirm the best way of disclosing the information requested to HMRC.
The amount of tax you’ll have to pay will obviously depend on your total level of income and what hasn’t been disclosed to HMRC. Other amounts that you could be liable for include interest on overdue tax, which may be substantial if it’s been undisclosed for many years, and penalties for not disclosing in the first place. Penalties are variable and can be based on your level of co-operation with HMRC, so it’s important that you’re as flexible and communicative as possible.
KPP can help
If you’re worried that the information that you’ve disclosed to HMRC isn’t as accurate as it should be, whether through card payments or other means, then you should sort things out sooner rather than later. At KPP we can help you do that. Get in touch today for an initial consultation.