HMRC announce that they are targeting e-traders and businesses above VAT threshold

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As you may have already heard, HMRC have announced that they will be targeting several sectors over the next year, including e-traders.

E-marketplaces. This will cover those who are using e-marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed. People who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign.

HMRC will use cutting-edge tools such as “web robot” software to search the internet and find targeted information about specified people and companies. Using the software, the department can pinpoint more accurately people who have failed to pay the right tax. The “web robot”, used with the department’s Connect computer system, also helps find people who are trading without telling HMRC.

They are also focussing on individuals and businesses operating at or above the VAT threshold who have not registered. This information is taken from tax returns where the turnover declared is over the VAT registration threshold for the tax year.

There may be a good reason why the individual has not registered e.g. their income is outside of the scope of VAT. In my experience, a quick call/email to HMRC in response to their letter should suffice.

If your turnover is over the VAT threshold and you do not need to register because sufficient income is outside of the scope of UK VAT, you may wish to make a note in the additional information section of your 2010/11 tax return so that they are less likely to contact you. eg Turnover shown in the tax return of £85,000 comprises UK sales of £50,000 + £35,000 of sales of services to non UK business customers which are outside the scope of VAT.

For those of you who use non-UK PPC and other non-UK services (known as Reverse Charge Services) , remember that for VAT registration purposes you must add the reverse charge services to your UK turnover in calculating your VATable turnover.

Feel free to read my guide at http://tips.hrbs.biz/vat/vat-for-affiliate-marketeers/ .

Regards

Keith

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Update...

HMRC have now started issuing letters with the catchy title of "VAT Initiative Campaign" so if your reported Sales is around the VAT threshold you may receive one shortly. Some extracts ...

If you're in business you have to register for VAT if:
your turnover for the previous 12 months has gone over a specific limit-called the VAT threshold (currently £73,000), or
yyou think your turnover will soon go over this limit.
If you should be registered and you've not yet done so, then you may be interested in our VAT Initiative' campaign.

What is the VAT Initiative campaign?
It's an opportunity for those who should be registered for VAT to tell us about it and to pay what they owe - both the VAT and any other taxes for earlier years. It's a chance for those people to get all their tax affairs up to date in one go, and on the best terms we can offer.

Why are you writing to me about this?
Based on information we hold, we are writing to those customers who we think may be interested in this opportunity.
If you have told us about all your income and made all necessary registrations, thank-you.
There is nothing more you need to do.

What happens if I should take part in the VAT Initiative but choose not to?
We have a range of information about businesses. From this we can identify those who we think should be registered for VAT. We will carry out investigations or checks into the tax returns of customers we believe should be registered for VAT. We will start to do this in October 2011 . Those found to have deliberately paid the wrong amount of tax could be charged a penalty of up to 100% of the additional tax and National Insurance due. Or they could be investigated with a view to criminal prosecution.

What you need to do now
If you're not sure whether you should be registered for VAT, you can find information on our website at HM Revenue & Customs: Tell HMRC now if you need to register for VAT or you can phone our VAT helpline on 0845 010 9000. If you know that you should have registered for VAT, or that you have not paid the right amount of tax, you need to tell us no later than 30 September 2011.
You can notify us that you want to take part in the VAT Initiative by either:
- phoning our VAT Initiative helpline on 0845 600 5217 or
- completing the notification form from the VAT Initiative guidance pack and sending it to us at the address shown above.
You can find the guidance pack on our website at HM Revenue & Customs: Tell HMRC now if you need to register for VAT
If you prefer, you can phone our helpline on 0845 600 5217 and we will send you a pack in the post.
If you have a tax adviser you should talk to them if you have a disclosure to make, or if you're not sure about it.

Reverse charge services:
In my experience, many late registrations are caused by not including reverse charge services in the VATable turnover calculation. Late registration can result in a penalty of 10% of the VAT that should have been paid to HMRC from the date that registration should have been effective to the date they receive the registration form.

Regards

Keith