In this series of videos Ian Hyde, the head of our tax disputes team, talks to Adrian Lifely about the tax compliance burdens HMRC have put on large businesses to police the gig economy. In the final video of their series, Ian and Adrian explore HMRC's power to collect data from large businesses.
Read the transcript.
Watch the full series:
AL: Hello my name is Adrian Lifely, I'm a Disputes and Risk Partner at the law firm Osborne Clarke. This is the fourth video in our series about HMRC using large corporates as a policeman to help prevent tax evasion and tax avoidance. I'm joined by Ian Hyde who's head of Osborne Clarke's Tax Disputes group. Ian what are we going to talk about today please?
IH: Well I'd like to cover, as a final subject, Revenue data collection powers and that’s very topical and very important to the gig economy and this whole policeman theme we have and also just finish off with some thoughts about the series we've been running. Just looking at data collection first of all. The Revenue have a lot of powers to collect data on taxpayers on a tax investigation but the challenges of the gig economy are that the Revenue don’t know where the tax payers are, they don’t know who they are, they are below the radar so they're not coming up on any of the systems the Revenue currently use. That’s their problem, they need to find them.
AL: So just to give this a bit of context: so are we talking about the likes of eBay having to produce information data to the Revenue concerning trading on eBay, would that be the kind of thing you're talking about?
IH: Yes, exactly. So if you look at a platform like eBay you have people who sell goods as a hobby, they have spare stuff in the garage and they sell it, that’s not trading, that doesn’t create a tax issue, but if you sell often enough a hobby becomes a trade and that trade itself, the trader should be reporting that. But also its not just the platforms. We discussed in the previous video, IR35 in the personal service company issue, those traders can also be invisible to the Revenue.
AL: Ok, so what legal issues arise from the data that is supplied to the Revenue?
IH: Well the Revenue's powers are under a specific bit of the tax legislation, Schedule 23 - Finance Act 2001 called the bulk data gathering powers, and the Revenue have prescribed limits on their powers, they can only ask a large business for certain information about its third parties. So the data has to be requested from someone called a relevant data holder, the corporate has to fulfil certain definitions. And secondly, the data that the Revenue can ask for can only be as set out in the legislation, so the constraints on that relevant data and as we were discussing in some of the earlier videos, a large corporate faced with a request like this may want to be a good citizen, may want to be cooperative and handover the data. The issue is primarily actually one of GDPR because, as I'm sure you know, you cannot just hand over personal data, so you can hand it over if there is a lawful request from the Revenue but in my experience, seeing this quite a lot now, the Revenue are making requests under the wrong headings in the legislation so they're getting the wrong category of data holder but they are also asking for too much data so if the Revenue are entitled to five items of data about your customers only some of those may be lawful so you have to be careful what you do because otherwise you end up with a GDPR problem. That’s where I think the problem is. It's tension between a corporate - one thing to be a good citizen but on the other hand risking a GDPR issue.
AL: Again the onus has been put on the large corporate and the large corporate finds itself in this dilemma. So on the one hand not complying with a request from the Revenue and on the other hand complying with a request which maybe is wrongful and results in the large corporates committing an offence under the GDPR.
IH: Yes, and it throws up other issues about customer relationships. You’ve got these people are often customers or people that are critical to the business.
AL: Customer data.
IH: Yeah, well if you hand over data relating to customers and you do it in breach of GDPR, you’ve also got a customer issue because the customer might abandon you and go off to some other platform or some other provider because they think that you're being very relaxed about their personal data and that’s a big issue in this.
AL: So your clients are asking you what? They are asking you to examine the request from the Revenue?
AL: To advise on the implications for large corporate customers.
IH: It's making sure that the Revenue are asking the right questions and only asking for the right data and evaluating with a client how to respond. Can you effectively negotiate the Revenue back to a position to where they are only asking for lawful data and I've seen that and that can work.
AL: So it's complying with the law and no more than that.
IH: And no more, exactly. And if the Revenue are drawing a line on this and saying that actually they really do want stuff that is in excess of what they are entitled then you might have to appeal it [and there's an appeal route as well].
AL: But you’d have a discussion with the Revenue first of all?
IH: Yes, I would encourage that, but ultimately the taxpayer needs a formal request because an informal request obviously creates other GDPR issues.
AL: Very good. So this is the end of our series, the fourth video in our series about HMRC using large corporates as a policeman. Ian can you try and kind of give us some key takeaways from the series that you'd think general counsel of large corporates should have at the top of their minds?
IH: I think all these subjects, the ones we've covered, I think there is a theme here which is that, as we've talked about, that corporates are being made to do some of the leg work for the Revenue here. Now, against the climate of the Revenue being very aggressive, they're being very aggressive with these measures and I don’t see that changing in the near future so I think general counsel, heads of tax, I think they need to plan for how they are going to respond to these types of issues. They certainly can't just be passive and wait for them to come up. I think there's a lot of planning, internal planning around how they manage it and then when they do come up, how are they going to react to it. Are they going to take that rather more cooperative approach with the Revenue but that creates business risk, it creates brand issues. It creates financial risk. I think GC's are part of the debate, internally and I think the theme I would say, the central theme to it is the Revenue will be using these powers and heads of tax and general counsel should be aware of them and be ready for them and have policies in place that means that they can manage that risk.
AL: And one theme of the series has been the particular relevance of this to the gig economy is that right?
IH: Yes, I think gig economy is perhaps a lightning rod for some of these issues. It has all the traits of the reasons why the Revenue are using corporates as policeman, but it's no means the only area. But yes I think anyone who has any engagement with flexible work forces or traders who might be below the Revenue radar need to just check their risk issues because they certainly will be in the Revenue sights for this sort of issue.
AL: Ian, thank you very much. Thank you for watching the series. Clearly these are new developments and it remains to be seen exactly how things play out. We will plan to do another series of videos at a later stage when we can share with you more practical experiences of the new laws in operation.