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HMRC was awarded nearly £1 billion by government to improve its arsenal to tackle tax fraud and evasion in the UK. Under new powers which came into force of September 2013, HMRC hopes to: 1) to ensure a level playing field between businesses and 2) reduce ways to cheat the system.

With access to all credit and debit card payments to UK businesses from the UK’s merchant acquirers (the companies that process card payment transactions) of up to four previous years, HMRC is able to analyse the number and value of transactions completed by specific traders.

Although HMRC cannot obtain personal data identifying individual card owners or card numbers, it’s sophisticated risking system, Connect, will cross-reference the data it has access to, which will then be analysed against other data already held on companies, to ensure that all taxes due have been properly accounted for. This process will help HMRC identify tax fraud and evasion.

According to the David Gauke, Secretary to the Treasury, it will also equalise the market between businesses who offer lower prices for goods because they don’t pay tax due, against those companies whose prices are higher because they do follow the rules.

What will this information include?

  • Monthly totals of debit and credit card sales
  • Name and address
  • VAT number
  • Bank account details.

HMRC already had powers to obtain four years’ worth of "relevant data" held by employers, land owners and companies in other settings to assess whether they are paying the correct amount of tax. The new data-gathering powers are extended to bring "a person who has a contractual obligation to make payments to retailers in settlement of payment card transactions" within the scope of the anti avoidance legislation.

Who might be most affected?

This new power may hit hard businesses such as restaurants, cafes, shops, garages and hotels due to the high number of credit and debit card payments. I imagine that online retailers, who may offer lower prices by avoiding tax, may also come under scrutiny. Remember that apart from possible prosecution, the fines for providing HMRC with false information will almost certainly be pretty ruinous too; see our blog on penalties and sanctions.

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