HM Revenue & Customs New Tool in the Tax Evasion War

In the old days, the tax investigations department of HMRC would undertake many months of preliminary manual review work before making a decision whether or not to open an enquiry in to a taxpayers affairs for evasion or avoidance activities.  This painstaking work involved reviewing internal records, collating outside sources of information (for example websites), local papers, and contacting other Government agencies.  Weeks of collating, sorting and crosschecking to build sufficient evidence to justify the action.

All this “hard work” is now dealt with at a touch of a button by HMRC’s new computer system, known as ‘Connect’.  The defence contractor BAE Systems, with the support of HMRC’s Risk & Intelligence team, designed the Connect system.  It was launched in the summer of 2010 at a cost of £45 million and by 2011 it is reported to have had delivered £1.4 billion of additional revenues according to the National Audit Office.

Six out of ten enquiries now make use of the system, with the tax inspector working with Connect analysts who look after the system and its information.

Connect links taxpayers to more than one billion pieces of information held in the system, which is fed from  28data sources of information, including offshore bank accounts obtained under Tax Information Exchange agreements.  It then compares the information sourced to the taxpayers tax return to flag up any anomalies or the fact no return has been filed!

The report produces a spider web diagram linking the taxpayer to property, companies, bank accounts etc., so a picture can be built up and analysed.

An example of the power of the tool is inheritance tax, which is reported by the filing of 300,000 paper returns annually.  200,000 of these returns report that the death estates are within the nil rate band, the level at which no inheritance tax is paid, currently £325,000.  Using Connect, HMRC can sift through information on property transactions, company ownerships, loans, bank accounts, employment history and self-assessment records to spot where estates might be under-declaring. The Financial Times reported that in its first yearalone, Connect raised an extra £26 million in inheritance tax.

Connect is bringing in money to the Treasury from those who have not been paying the correct tax, not just those deliberately evading or avoiding tax, but those who have unwittingly under declared.  At Harbour Key, we have already experienced clients who have been picked up for an innocent omission, such as forgotten bank accounts, or HMRC jumping to conclusions, for example ownership of offshore property on which no rental income is received.

If you wish to learn more about HMRC enquiry techniques and how to protect yourself, attend our seminar at theCheltenham Racecourse Monday 3 November by .  In the meantime should you need to discuss any of the above please do not hesitate to contact us.

Harbour Key Limited

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+44 (0)  1242 241747

   9th September 2014