Writing a chapter on HMRC’s digital strategy for this year’sTax Faculty Taxline Tax Planning brought home to me the degree to which HMRC is using sophisticated software to unearth information and to select cases for enquiry. HMRC is also becoming increasingly adept at using mainstream digital information sources.
People share astonishingly revealing information via social media that they may think nothing of at the time
At the most basic level, I recently saw a case where HMRC looked at Google satellite view images of a caravan park and asked questions about the number of hard standings in the images and the number from which income was being declared. I have also recently seen officers use online information about planning applications to question the apportionment of expenditure on a property between repairs and capital. More potentially useful information would be available in such cases from Google Street View and from easily accessible high resolution imagery. All of it is available at the click of a mouse.
People share astonishingly revealing information via social media that they may think nothing of at the time but which reveals details of their lifestyle, whereabouts and activities. They may not even realise that you do not need to follow someone on Twitter to see their tweets, which can easily be viewed without leaving any trace.
Images, news stories, planning information and social media are all easily accessible, but HMRC also has some far more sophisticated tools at its disposal.
HMRC has now received over 300 million pieces of XBRL data contained in online corporation tax returns. Automated risk rules are run against this data and the results are analysed by a programme called Magnify to identify potentially high risk returns. Statistical information is presented in the form of scatter diagrams which show dense clusters of entries in the expected range - those outside the cluster represent cases worthy of closer examination. HMRC claims to have uncovered hundreds of employee benefit trusts in this way, to have discovered subsidiaries it had not previously known about and to have been alerted to exchange rate anomalies in particular sets of accounts.
The most sophisticated weapon in HMRC’s digital armoury is perhaps Connect. Connect was designed by BAE Systems and has been operating since 2010. It contains over a billion records including taxpayer records, information from third parties and from the internet. It includes interest on bank accounts, business ownership details and information from overseas tax authorities. Every new international tax information exchange agreement gives Connect another potential source of data.
Connect has unearthed undisclosed overseas property income, undisclosed literary income and assets omitted from IHT returns. It was used in HMRC’s campaign directed at medical professionals with undeclared income, comparing tax return entries with information from hospitals, insurers and pharmaceutical companies to identify differences and omissions. I have seen cases where Connect has prompted HMRC to ask questions based on Land Registry ownership records, capital gains tax declarations and rental information shown on tax returns. It has so far yielded over £2 billion in additional tax and is currently being upgraded.
HMRC is also using “web robot” software to trawl the internet for information.
The days of the local inspector trawling the local newspaper for information about lifestyles inconsistent with recorded wealth and for “below the radar” traders have gone. The days of sophisticated computer systems trawling almost unimaginable amounts of data to find tax potentially at risk and of officers hundreds of miles from your clients knowing what they have in their back garden and what they tweeted when they were on holiday (while claiming to be on business) are here.
HMRC’s electronic eye may not be all-seeing, but it sees far more than many people imagine.
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Paul Aplin is a tax partner with West Country firm A C Mole & Sons and Chairman of the ICAEW Tax Faculty Technical Committee - you can follow him on Twitter @PaulAplinOnTax