Hand over your data! HMRC wants more powers to obtain data in bulk

HMRC wants more bulk data-gathering powers to feed into its growing big data analytics systems

HMRC has made a plea for more power to demand bulk data from online businesses and other organisations, justifying the power grab on the grounds of tackling tax evasion.

The new bulk data-gathering powers will form part of a wider, more aggressive approach to tackling alleged tax evasion, especially by individuals and sole traders, which will include the right, for the first time, for HMRC to take tax that it believes it is owed directly from people's bank accounts.

HMRC therefore needs greater bulk data-gathering capabilities in order to be able to put together more comprehensive cases against individuals and small businesses it suspects are not fully declaring their income.

"Data can be particularly powerful when it is collected from third parties who facilitate trade, either between businesses, or between businesses and consumers," claims HMRC in a recently released report.

Demanding data in bulk from organisations like eBay and eBay-owned Gumtree is less of a burden for them, it adds, than requiring such organisations to provide information about a number of specific users.

"They can provide information in bulk about the activity of large numbers of traders, and because third-party data can be used as an independent check against the data that taxpayers themselves report to HMRC (third-party data is less likely to be subject to accidental misuse or deliberate manipulation)," continues the report. "Targeted data-gathering powers also minimise the burden on business, obtaining data in bulk from a few sources rather than imposing broad-based reporting requirements."

Such data could then be fed back to taxpayers when they file their tax returns. "Third-party data also plays an important part in HMRC's ambition, where possible, to present its customers with data to check rather than forms and tax returns to complete. Pre-filling or pre-populating information in this way will help to reduce error and improve overall compliance."

HMRC was given extra powers to demand data from credit- and debit-card processors in 2013 which, it claims, has helped it to identify individuals involved in trading who have either not registered for tax or under-declared their earnings.

Moves to increase the level of bulk-data acquisition, claims HMRC, are supported by government, which is already legislating to give HMRC extra data acquisition powers.

"The government has now announced its intention to legislate to extend access to two similar sorts of data to help tackle the hidden economy. These changes will apply to data held by:

• Electronic payment providers - businesses that perform a similar function to merchant acquirers by handling monetary transactions, but not necessarily in relation to credit and debit cards (increasingly these transactions are online and take different digital forms); and,
• Business intermediaries - these businesses can take many forms, for example, allowing customers to make orders, purchases or reservations, relating to goods, services or digital content. Again, these businesses increasingly operate on digital platforms."

HMRC has, for years, used data provided by banks and building societies on interest paid on people's current and savings accounts to tip them off over potential under-declaration of income. These powers were streamlined in 2011 and 2012, enabling HMRC to demand information for the payment of all taxes with the exception of customs and excise.

HMRC claims that it needs even more data-gathering powers because "non-compliant taxpayers continue to exploit the gaps in HMRC's data-gathering powers".

These will be targeted at two main areas that the government is already legislating for: business intermediaries, especially online businesses, including app stores (where individuals may be earning sums of money, large or small, from the sale of apps); and, payment providers that fall outside the scope of credit- and debit-card payment processors, such as PayPal, e-wallets and other money transfer services.

In order to ensure that these methods of payments do not become a natural hiding place for those wishing to evade tax, the Government has proposed that legislation is updated for HMRC to receive aggregated and/or transactional level data from these and other newer types of payment provider. Ominously, perhaps, HMRC has called for these powers to be "future proofed", so that it can unilaterally extend them in future.

The consultation also calls for ways in which international businesses can be co-opted into its data-gathering regime - presumably with bilateral agreements.

Critics, however, will argue that the weight of HMRC's new investigative and data-gathering powers will fall hardest on individuals and small businesses, rather than big businesses who are able to avoid much larger amounts of tax using various techniques.

HMRC estimates the so-called "tax gap" - the difference between the amount that HMRC scoops up and the amount it thinks it ought to take - at £5.9bn due to the hidden or black economy.

HMRC has been upgrading its analytics capabilities over several years, breaking down its old siloed technology to enable compliance staff to track taxpayers across several different taxes and activities. It has installed systems that allow staff to put together images of taxpayers with easy-to-use graphical tools, enabling them to conduct investigations in a matter of hours that used to take weeks.