News - direct

Internet spy

Businesses which trade on the Internet, but which have omitted to tell HMRC about their existence may find themselves caught by Xenon, a data-mining tool which explores the Internet looking for business or trading websites searching out multiple transactions.
An HMRC press spokesman says that it saves a lot of man hours looking for unreported businesses and has been operational since April 2006. Xenon identifies websites of interest to HMRC and collects information from the Internet to assist in their enquiries. He says that 'it is much more efficient than trying to do the same thing manually as we have in the past'.
As HMRC only began using Xenon operationally in 2006, there is no data on its success rate, and the spokesman says that it is not possible to link the outcomes of interventions to HMRC's use of Xenon.
Xenon is another weapon in HMRC's investigation armoury, and is an indication that they are making increased use of technology to uncover the informal economy, along with the more traditional methods that they rely on such as disgruntled ex-spouses and unhappy employees.

E-trading

HMRC have posted a new internet-based guide for people who trade online. It outlines the rules for people who trade online for a profit, as opposed to others who are just clearing low value items from the attic. The guide can be found at: www.hmrc.gov.uk/findout. Online traders are considered to be self employed if they:

• sell goods they bought with the intention of re-selling them;
• make items themselves and sell them, intending to make a profit;
• sell or buy goods on behalf of others for financial gain (on commission); and
• provide a service and receive payment in cash or in kind.

If people are selling the odd item such as unwanted presents or possessions, and are not buying goods to trade for profit, they are considered to be non-e-traders. See 'Badgers of Internet trading' by Will Silsby, Taxation, 10 November 2005.
The 'findout' section of the website also targets the self employed in general and landlords.
However, there are some errors and ambiguities in the press release relating to landlords. For example, they say that 'landlords should register with HMRC within the first three months of starting up a new business'. In saying this, it seems that HMRC are confusing a rental business with being self employed, and having to pay Class 2 National Insurance, for which there is a three-month notification period. Landlords, on the other hand, have to request a tax return if they do not already get one each year, include the income when they complete it, and send it in by the following 31 January. Furthermore, the release does not mention that income of up to £4,250 a year received as a result of the owner letting out a room in his home is covered by rent-a-room relief.
If HMRC wanted to target landlords, it would have been better to have done so separately, not as part of a campaign aimed at the self employed.
HMRC news release dated 6 February 2007

One month grace

HMRC have agreed to give businesses a one-month transitional period to deal with the reduction in advisory fuel rates for company cars, which came into effect on 1 February 2007 (see Update, Taxation, 8 February 2007, page 156 for details of the new rates).
John Cullinane, CIOT president, says that the original timescale 'provided insufficient notice for many employers to implement the change' and that the CIOT is 'very pleased that HMRC listened to our representations and those of the Institute of Payroll Professionals, and responded swiftly in order to help alleviate the business burden'.
Under the change, employers who have practical difficulties implementing the new lower rates can continue to use the older higher rates for a further month without having to take into account the income tax, National Insurance and VAT implications of paying allowances at the higher rate. HMRC say that this treatment will extend to those employers with dispensations for fuel rates which are linked, usually by a formula, to advisory fuel rates. They add that employers can, however, use the new lower rate with effect from 1 February for employees with fuel cards who reimburse their employers for private fuel bought with a company fuel card.
CIOT press release dated 6 February 2007 and www.hmrc.gov.uk

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