HMRC used eBay data to estimate turnover

by Rickie Lowery

A taxpayer failed to provide details of sales made through online market places, so HMRC used its power to collect that data directly from the market provider.

 Adspec Limited imported electronic tablets and accessories from China and sold them to UK customers via eBay, Amazon and its own website. The company’s sole owner/ director was Adil Hussain.

HMRC examined Adspec’s import figures and compared them to the turnover reported on its VAT and CT returns. Data obtained from one of the company’s eBay account confirmed HMRC’s suspicions that a large number of sales were not declared. This precise information on products advertised and the price points allowed HMRC to raise VAT assessments and calculate the likely profit margins of the company.

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

The crux of these assessments was that HMRC believed Adspec had significantly underdeclared its imported goods figure. This would in turn mean sales had been similarly understated. HMRC had requested Adspec provide their records covering the periods under review; by the time of the hearing these documents had still not been provided.

Following an independent review of the amounts, the tax at stake totalled £316,053 and the penalties £193,585. HMRC also issued Personal Liability Notices (PLNs) for the penalties, making them a personal liability of Hussain.

Hussain appealed to the first tier tribunal (FTT).

The FTT

The disputed matters were:

• Whether trading receipts and profits had been omitted for CT purposes for the periods in question and whether this was a deliberate act for penalty purposes.

• Whether there were undeclared sales for VAT purposes for the periods in question and whether their omission was deliberate.

• Whether Adspec should in fact have registered and accounted for VAT from 4 March 2013, rather than 1 January 2014 and whether this should attract a penalty.

• Whether Hussain was personally liable for the company’s penalties via the PLNs.

Initial findings

The FTT decided that Hussain had chosen not to provide the information requested by HMRC, rather than being unable to provide it, therefore their behaviour was deliberate.

The only records HMRC had received from the company were a set of bank statements, showing amounts being paid in from PayPal. Hussain claimed this was the sole business account, but the FTT were not convinced.

The FTT agreed with HMRC that their assessments represented reasonable estimates based on the limited third party information HMRC had acquired from eBay. Further, they had all been raised within the necessary time limits.

Round sums

They also noted it was impossible to tell from the bank statements how much had actually been received into the PayPal account, as Hussain only ever transferred round sum figures. Even if these represented the full amounts available to transfer, they would still be net of fees, making them more akin to profits than turnover. While this was less of an issue for CT purposes (assuming fees were not claimed elsewhere), it would affect the VAT position.

Without supporting accounting records, it was impossible to confirm whether the bank statements represented the full picture. Hussain argued that HMRC should have acquired further third party information, but the FTT confirmed the onus is on the taxpayer to support their own figures.

Counter arguments

Hussain pointed out they had provided information, however as none of this information was items requested by HMRC (nor, it appears, particularly useful as a substitute) this fell on deaf ears. The FTT believed that the reluctance by Hussain to provide the documents requested was because they would support HMRC’s position.

Hussain next argued that HMRC should have reduced the tax liabilities for postage costs and faulty goods. Again, the FTT were unconvinced as the lack of supporting documentation meant there was no way to prove the VAT status of the suppliers, nor whether faulty items were refunded.

Undaunted, Hussain pointed out that just because there had been additional imports, that does not mean there were additional sales. However, on balance, the FTT concluded additional sales must have occurred.

As a last attempt, Hussain claimed HMRC had not provided any evidence of where the alleged additional funds had gone nor that Hussain had a lavish lifestyle. Once again, the FTT confirmed that HMRC is not required to demonstrate such things; besides, the surplus funds could simply be sitting in the PayPal account.

PNLs

The loss of tax was found to be caused by deliberate behaviour attributable to an officer of the company. As HMRC and the FTT suspected Adspec could become insolvent in the near future, the PNLs were held to be valid.

Hussain argued that HMRC had had no reason to believe Adspec would become insolvent, however based on the magnitude of the assessments and the lack of engagement by Hussain, the FTT disagreed.

The appeal was dismissed.

Conclusion

Whether Hussain wilfully withheld company records to avoid shooting themself in the foot or whether it was unintentionally caused by their mental health issues as they claimed, the lack of documentation made this an easy win for HMRC.