Policy paper

Tackling the hidden economy: extension of new data-gathering powers

Published 9 December 2015

Who is likely to be affected

Business intermediaries, including those facilitating online trade, and electronic payment providers who operate digital wallets.

General description of the measure

These measures will give HM Revenue and Customs (HMRC) the powers it needs to tackle the digital hidden economy. They provide HMRC with a new power to gather data from business intermediaries who facilitate transactions, particularly online, and electronic payment providers who operate digital wallets. HMRC will then be able to compare that third party data with its own information to identify those businesses who are failing to register with HMRC or are not declaring the full amount of the tax they owe.

Policy objective

Businesses are increasingly using intermediaries to provide custom or take payments without registering for tax, and payment models have evolved and are moving away from cash and card transactions to other electronic payment routes, which means some businesses can trade digitally while remaining beyond HMRC’s view. This measure updates HMRC’s data-gathering powers to keep pace with these changes.

Background to the measure

Bulk data-gathering powers were modernised and simplified in 2011 and 2012 following two consultations as part of the HMRC Review of Powers, Deterrents and Safeguards. The revised powers brought together existing powers under a single modern framework. In 2013 (section 228 of Finance Act 2013) HMRC obtained new powers to collect data from merchant acquirers - businesses that process credit and debit card transactions. This data helps HMRC identify traders that are receiving income but are not registered for tax, as well as those who are registered but under-declare their income to HMRC.

Since these new powers were introduced, new payment methods and innovations have arisen such as digital wallets. In addition, transactions are increasingly being facilitated through a business intermediary.

Detailed proposal

Operative date

These measures will have effect on and after the date that Finance Bill 2016 receives Royal Assent. Secondary legislation will be made by the end of the summer 2016.

Current law

Current law is contained in section 86(1) and Schedule 23 to Finance Act 2011 which is the framework of data-gathering powers. These are used to gather third party information for risk assessment of taxpayers.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend Schedule 23 to the Finance Act 2011 by adding two new categories of data-holders. This will allow HMRC to issue notices to business intermediaries and to electronic payment providers operating digital wallets requiring them to provide data.

Secondary legislation made under paragraph 1(3) of Schedule 23 will specify the relevant data that HMRC can require electronic payment service providers and business intermediaries to provide. This will be information in relation to data relating to electronic payments they facilitate to recipient accounts and include identifying the account holder’s name, address, telephone number, email address, website address, national insurance number, VAT number, unique taxpayer reference, or any other identifying information, if available, bank account details and whether an individual, partnership or limited company.

HMRC will have the power to require data from business intermediaries revealing the gross value of the transactions they facilitated, whether or not the payment for the transaction facilitated was processed by the data holder. HMRC will also be able to identify the trade of the business as part of the arrangement between the intermediary and the business. Where transactional data is not held, HMRC will be able to require any information that will enable HMRC to either quantify or establish the volume/level of transactions of the business (‘relevant details’ - commissions and commission rates charged, number of transaction reviews, number of click through rates and number of visits to an advert etc).

Data-holders will benefit from the safeguards in Schedule 23 Finance Act 2011, including the right of appeal to notices issued which already applies to other types of data-holder. These measures will provide HMRC with third party information of a high quality, in a form that can be used effectively. By connecting this data with data already held, HMRC expects to be able to carry out compliance checks that are more accurately targeted on the area of highest risk, and which can be concluded more quickly.

This data helps HMRC to tackle the hidden economy by identifying businesses receiving income but not registering for tax, as well as those who are registered but under-declaring their income to HMRC.

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
-	+15	+110	+195	+255	+285

These figures are set out in Table 2.1 of Summer Budget 2015 and have been certified by the Office of Budget Responsibility. More detail can be found in the policy costings document published alongside Summer Budget 2015. They cover all changes announced at Summer Budget 2015 to tackle the hidden economy; they therefore include the impact of additional HMRC staff to exploit this data and the introduction of a new digital disclosure channel, as well as the extension to HMRC’s data-gathering powers.

Economic impact

The measure is not expected to have any significant macroeconomic impacts.

A behavioural adjustment is included to account for individuals becoming more compliant in the future if their tax affairs are reviewed by HMRC.

Impact on individuals, households and families

This measure is not expected to have an impact on individuals. The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

HMRC has considered the equalities impact and it is not expected that this measure will have an impact on any protected equality group.

Impact on business including civil society organisations

Businesses affected by these measures will be business intermediaries and electronic payment providers who operate ‘digital wallets’.

These measures are expected to benefit compliant businesses by ensuring a level playing field between those businesses who comply with their tax obligations, and those that do not.

The government acknowledges that there will be some impact in respect of additional administrative burdens for business intermediaries and electronic payment providers, as they will be required to provide HMRC with this information and data. HMRC believes that these costs could be significant.

HMRC will only issue notices to data-holders where the data that will be obtained will be of value in identifying and tackling tax non-compliance. HMRC’s governance process prior to the issuing of a notice will take into consideration the administrative burden placed on the data-holder in preparing and providing the data required to ensure that there is not a disproportionate burden. Before a notice is served, HMRC will work with that data-holder to understand their data, how the data is collated and what format it is in. This will aim to minimise the burden on the data provider and ensure that the data is useable when it is passed to HMRC.

Operational impact (£m) (HMRC or other)

HMRC received additional financial resources at Summer Budget 2015 to manage and act upon this new data.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through compliance activity and communication with bodies required to provide HMRC with bulk data, to ensure the policy operates as intended.

Further advice

If you have any questions about this change, please contact:

Claire Williamson on Telephone: 03000 586815 or email: claire.williamson@hmrc.gsi.gov.uk

Angela Roach on Telephone: 03000 586962 or email: angela.roach@hmrc.gsi.gov.uk