On 22 July 2015 the UK tax authority HMRC issued a consultation document entitled “Tackling the Hidden Economy: Extension of Data Gathering Powers”.

HMRC estimated that in 2012/13 the element of the tax gap caused by the hidden economy amounted to GBP 5.9 billion. Closing the part of the tax gap that results from the hidden economy involves obtaining more data about taxable activity thereby enabling HMRC to target resources effectively to close this gap in revenue collection.

HMRC considers that data is valuable for this purpose when it is obtained from third parties who facilitate trade between businesses or trade between businesses and consumers. These organizations hold information about the business activity of large numbers of traders. This third party data can be checked by HMRC against the data reported to them by the taxpayers to detect discrepancies.

Another strand in the thinking of HMRC is that in the future taxpayers will be presented with data compiled by HMRC such as pre-populated tax return forms rather than filling in their own returns. Taxpayers would be asked to check the information and confirm that is it correct. Greater data gathering powers would enable this to be done more thoroughly.

Through the Finance Act 2013 HMRC gained more powers to collect information from businesses that process credit and debit card transactions. The information is used to help detect under-declared income or traders with income who are not registered for tax. There is however a need to widen the scope of the powers.

The legislation is now to be extended to permit gathering data from electronic payment providers, those who facilitate digital payments including online transactions. Payment providers within the scope of HMRC data gathering would include payment models such as digital wallets that facilitate electronic business transactions. The scope of the data gathering will also include business intermediaries such as those facilitating orders, purchases or reservation of goods, services and digital content.

The groups of data holders, defined by their function, are to be set out in the primary legislation and the types of data that could be requested from them will be listed in the regulations. The consultation is inviting comments on the scope of the proposed changes and ways of reducing the resulting compliance costs for businesses. The business intermediaries who hold data important for HMRC include advertising platforms, app stores and booking intermediaries. The consultation document is asking for comments on other data holders or payment providers who could be included within the scope of the legislation and how frequently information should be requested from them.

HMRC will be looking to access information on activities of UK businesses even where the business intermediaries hold the information outside the UK. The consultation document is therefore asking for comments on the approach to obtaining data from data holders with only a limited presence in the UK.

The consultation also covers the issue of whether the existing safeguards for data holders and rights of appeal are sufficient to cover the wider scope of data gathering powers. Another element in the consultation is the issue of minimizing the compliance costs for data holders. This could involve a standard format for the provision of data to HMRC to facilitate the process of compiling the data.

The closing date for comments on the consultation document is 14 October 2015.