HM Revenue & Customs (HMRC) may now know more about you than you do. In the last three years HMRC has invested heavily in IT in order to improve and maximise their IT capability. The result is that they can now gather, process, analyse and respond to information more efficiently and swiftly than before, hence the launch of multiple tax crackdown campaigns. Before HMRC’s IT investment a lot of the data they gathered had to be done manually and required manual cross checking and validation. This proved incredibly time consuming for inspectors and resulted in them working on a taxpayer by taxpayer basis. HMRC could therefore not justify wider or more targeted campaigns as with the limited data they had they would have been declared as “fishing expeditions”.
However, three years ago all of that changed when HMRC invested £45m in a computer system called Connect. All of the data HMRC now gathers from third parties, such as banks and local councils, is fed into this machine and it is now said to hold more data than the British Library. To this database a formula is then applied to analyse the data and highlight any links. This data can then be used to identify possible discrepancies based upon information reported within an individual’s tax return, which is likely to lead to the issue of a focused tax enquiry. Should such an enquiry identify additional tax liabilities, the Revenue have now been given the power to impose penalties of up to 70% of the extra tax, even if the omission from the tax return were inadvertent.
In addition, these links and trends are being used by the Revenue to launch campaigns against specific business sectors. So far, HMRC have targeted landlords and multinationals. However, in the last few weeks they have launched their latest campaign against solicitors. These campaigns all begin the same, with HMRC offering individuals in that sector the chance to get their tax affairs in order, or else face penalties or even jail. This ‘scare tactic’ is used to encourage people to pay up any outstanding tax before they begin their investigations and approach them directly, which inevitably results in higher penalties and the strong possibility of jail.
With the new system HMRC is able to spot inaccuracies with tax returns as well as roll out more frequent campaigns and there are already rumours that the next to feel the heat may be expats. Therefore, it is essential that you are keeping your tax affairs up-to-date as HMRC is only going to become more aggressive with the campaigns they launch and the potential imposition of penalties. If you are concerned about your tax affairs please contact our specialist tax Partner, Adam Moody, who will advise you.