HMRC Assessment for Underdeclared Turnover (eBay / Amazon)

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HMRC can use its information gathering powers to obtain data directly from eBay (and other UK marketplaces such as Amazon) if it suspects a taxpayer failure to give true information in regards to the sales made through online market provider.

The company Adspec Limited imported electronic tablets and accessories from China and sold them to the customers in the United Kingdom via Amazon, eBay and its own website. The company was solely owned by Adil Hussain.

HMRC made an assessment of Adspec’s import figures by comparing them to the turnover which was reported on its CT returns and VAT. HMRC’s suspicions were confirmed when a huge number of sales not declared upon obtaining data from one of the company’s eBay account. This specific information about the products being advertised and the price points permitted HMRC to raise VAT evaluations and calculate the possible profit margins of the business.

HMRC raised assessments and penalty notices in August 2016, covering the accounting periods ended 3 March 2014 to 31 March 2015 and VAT quarters 4 March 2013 to 31 December 2015.

The central idea of all these assessments was that HMRC believed that the company had considerably undeclared its imported goods figure. In other words, this would consequently mean that sales had also been understated. HMRC then requested the company to provide their records covering the periods under review; the requested documents were not still not provided until the time of the hearing.

Nonetheless, the tax stake totalled at £316,053 along with penalties which were £193,585. A Personal Liability Notice (PLNs) was also issued by the HMRC for the penalties to make them a personal liability for Mr. Adil Hussain.

Taxpayer Appeal to the UK Tax Tribunal (FTT)

Mr. Hussain then appealed to the first tier tribunal (FTT). The disputed matters are discussed below:

• Whether trading profits and receipts had been omitted for the purposes of CT covering periods in question and whether this was done deliberately for penalty purposes.
• Whether there were sales undeclared for the purposes of VAT covering periods in question and there was a deliberate omission.
• Whether the company should have registered and accounted for VAT from 4 March 2013, instead of 1 January 2014 and also whether this attracts a penalty.
• Whether Mr. Hussain was liable personally for the penalties of company through the PLNs.

The FTT concluded that Mr. Hussain’s behaviour indicated that he had deliberately not provided the information which was requested by HMRC. HMRC only received a set of bank statements confirming amounts being paid in from PayPal. The FTT were not convinced when Hussain claimed this to be the sole business account.

It was agreed between the FTT and HMRC that their evaluations represented reasonable estimates based on the limited third-party information that HMRC had acquired from eBay.

It was also noted that bank statements were not sufficient as evidence in showing how much had actually been received into the PayPal account because Hussain only transferred round sum figures. They would still be net of fees, even if these represented the full amounts being available to transfer, making them more akin to profits than turnover. It would eventually affect the VAT position. It was impossible to confirm without supporting accounting records, whether the bank represented the full picture. Mr. Hussain argued that further third-party information should have been acquired by HMRC. However, it was confirmed by the FTT that the onus is on the taxpayer to support their own figures.

Mr. Hussain highlighted that the information provided by the company was irrelevant to the matter. The FTT believed that Mr. Hussain was being reluctant to provide the requested information as that could have supported HMRC’s position.

Hussain argued that there should have been a reduction in tax liabilities for postage costs and faulty goods by the HMRC. Again, the FTT was unconvinced as the lack of supporting documents meant that proving the VAT status of the supplier would not be possible, nor whether the faulty items were refunded. It was further pointed out my Hussain that additional imports do not prove that there had been additional sales but the FTT still found that unconvincing.

As a final attempt, Hussain claimed HMRC failed to provide any evidence of where the alleged additional funds had gone. Again, the FTT ruled that there is no such requirement for HMRC to demonstrate such things as the surplus funds could simply remain in the PayPal account.

Personal Liability Notice

The loss of tax seemed to occur by deliberate behaviour attributable to an officer of the company. The PLNs were held to be valid as the FTT and HMRC suspected the company i.e., Adspec could become insolvent in near future.

However, this was challenged by Hussain as he stated that HMRC had no reason to believe that the company would become insolvent. However, the FTT disagreed based on the magnitude of the assessments and the lack of engagement by Hussain. The appeal eventually got dismissed.

Conclusion

It was not clear whether Hussain willfully withheld company information or whether it was unintentionally caused by their mental health issues as claimed by them, the lack of documentation made it easy for HMRC to win.

Our expert team of established Tax and Duties Specialist Solicitors and Barristers have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by Her Majesty’s Revenue and Customs (HMRC). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently.

Therefore, it is important to take professional legal advice early to minimise tax fines, mitigate tax exposure as far as possible and ensure a settlement is reached on favourable terms. If you require advice on any tax investigation against you, contact our London Tax Solicitors and Barristers for a confidential consultation.

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Our team of solicitors and barristers represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best representation in negotiations with HMRC and defend all forms of HMRC enquiries and investigations. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge which ensures best results for our clients. We are based in legal epicentre of London, just across the road from the Royal Courts of Justice. If you think you have a case, get in touch with our team of professional tax lawyers who can assist you in understanding the merits of your claim and advise you in your best interest. We are in it with you, from start to finish and will manage the entire process on your behalf.