Think back just a few months to the global news story about US and UK electronic snooping on email and other internet traffic. The revelations at least served to illustrate just how vast the data capture and information processing abilities of government agencies have become. Of course, there were the usual reassurances that this was all necessary for our protection, and the standard secret policeman’s line of ’Why worry if you’ve nothing to hide?’. So we stopped worrying and went back to business as usual.

That story made headlines for a few weeks and brought the subject of government data trawling briefly out of the shadows. A recent, not entirely unrelated development, which has attracted very little (if any) public discussion, may concern a few readers a little more directly. From September 1, HMRC has had the power (under the Finance Act 2013) to access information directly from the UK’s merchant card acquirers to establish the number and value of all card transactions made by any trader in the previous four years that means all credit and debit cards. The first requests for this data were made in the week that these powers came into effect, so by the time that you read this the new system will already have been working for a month or so.

chilling tone

The official line is that no ’personal’ information regarding customers will be collected ie card numbers, names, etc but in a slightly more chilling tone they then say that the data will be analysed using a system known as Connect which ’cross-references and compares the data with what the tax authority already holds’. While the degree to which various government agencies are IT-linked is really only known by those specialists and consultants who’ve spent years working on Whitehall’s IT systems, it’s a fair assumption that this sales data will be linked to VAT return information, income/corporation tax information and employment records. From there it doesn’t take a massive leap of imagination or paranoia to expect links to social security and bank account records.

Now you may still think that this isn’t going to affect you, not directly. But just remember that this is aimed specifically at retailers. Business-to-business transactions aren’t often settled by debit or credit cards, so the main targets of the new campaign are going to be traders who sell to the public. Then consider that over half of all the fuel sold in the UK is paid for on plastic. At some point, when they start analysing card data, petrol forecourts will feature probably quite frequently. Now that’s not to say that most petrol retailers have to worry. The typical forecourt already has enough technology from the tanks through the pumps to the point-of-sale (POS) to make sales auditing quite easy, certainly as far as fuel sales are concerned. But increasingly also in terms of shop sales and automated car wash sales at least until you reach the accounting systems. If there’s going to be a problem it’ll probably arise in either of two areas.

Does HMRC understand how petrol retailing works?

If you’ve ever had the experience of trying to ’assist’ a VAT inspector reconcile your POS reports to your management accounts and VAT returns, you may recall trying to explain some of the ’peculiarities’ of this industry and how they affect your figures. In particular, you might have tried to explain how your ’fleet card’ or ’Agency’ volume wasn’t really a retail sale in the normal sense, in that you don’t make the normal ’retail’ margin on that volume. If you’ve been there then you’ll probably remember the blank looks and then moving swiftly on to something more conventional, such as your tobacco purchase invoices. When HMRC pulls raw card data into its system, there’s unlikely to be anyone with industry-specific knowledge to explain what they’re seeing, so there’s more chance of their ’system’ generating an alert. Or take commission-operated sites. The fuel sales are owned by the parent company and accounted for under their VAT number, whereas shop sales are under the individual retailer’s VAT returns. But as far as customers’ card payments are concerned, the full value of fuel and shop sales appears as a single transaction.

One can only hope that HMRC understands what it’s seeing when it receives raw data from card processors. You may have nothing to hide, but do you really want to spend hours or days proving that once HMRC’s IT system decides that you’re a person of interest?

The retailer’s accounting system

Let’s be clear we’re not talking about deliberate fraud here. This scenario is about retailers who have an abundance of financial data on site from their POS/BOS systems, but it’s never checked or corrected, and may eventually be used ’raw’ to produce some figures that their accountant submits to HMRC without any further work. Or where the retailer is consistently late in extracting their data to produce ’real’ VAT returns, relying on estimates each time and then forgetting to adjust them when the actual data is eventually produced. Particularly that box on the VAT return for net sales figures (which are the ones most likely, obviously, to be compared to ’sales’ data from their card processors). Even if by some chance the final figures are not a million miles from the truth, there’s little evidence of how they’ve been compiled, and establishing an audit trail when HMRC comes for a chat will take them months.

Whether you see HMRC’s new powers as sinister, or just another attempt to crack down on tax cheats that should be applauded, is a matter of personal opinion. The fact is that they are in use today, and as part of a retail sector which uses payment cards particularly heavily, there’s a good chance your business will at some point fall within the scope of HMRC exercising these powers. At least now you can’t say that they were a secret about which nobody told you.