Web traders singled out as tax-revenue threat

According to the government's spending watchdog, individuals who don't declare their capital gains and income tax could be costing Britain up to £2bn a year

Web traders are the latest threat to the UK's coffers, according to the government's spending watchdog.

The Public Accounts Committee (PAC) has singled out individuals trading on the internet — along with the self-employed and buy-to-let landlords — as "new risks to tax revenue", caused by those who don't declare their capital gains and income tax.

Such individuals form part of what the PAC calls the "hidden economy" in a new report looking at ways to encourage tax dodgers to adopt legitimate business practices.

According to the PAC, the hidden economy could be costing Britain up to £2bn a year, with only two cases of tax evasion prosecuted for every 1,000 discovered in the case of the Department for Work and Pensions (DWP).

In order to crack down on tax evaders, the PAC recommends HM Revenue & Customs (HMRC) advertises the benefits of joining the "formal economy" to businesses, as well as detecting and prosecuting more offenders when they are found.

Turning to tech is one way to encourage those in the hidden economy to pay up voluntarily, according to the PAC report.

"The Department [HMRC] should devise similar schemes in other risk areas such as the home-repair and improvement sector and buy-to-let landlords. Such schemes would involve obtaining information on groups of potentially non-compliant people or businesses through data matching and other sources, and using that information to secure voluntary disclosure," it said.

Dave Hartnett, acting chairman of HMRC, told the PAC: "Once upon a time we identified people in the hidden economy and other individuals or corporates to investigate by local knowledge. Today that is not right. Today data matching done by machines is probably the best source of information we have," he said.

However, HMRC came in for criticism from the PAC for lagging behind the DWP in deploying data matching: while the Department for Work and Pensions conducts regular bulk data-matching exercises, HMRC's own data-matching efforts are "embryonic", according to the PAC.

"We are looking at much more complicated techniques to identify risk… but it is right to say it is embryonic because we are putting much more data together than ever before," Hartnett said.