As another January passes and more self-assessment tax returns are submitted than ever before, HMRC are looking to take advantage of new technologies and a recent legislative change to drive their tax investigations. Ryan Harrison of Leathers LLP looks at these developments and highlights the importance of getting it right.
On the 29 November 2016 the Queen gave Royal Assent to the Investigatory Powers Bill. Thanks to this new legislation, some 48 government agencies will now have permission to obtain the internet and communications history of everyone in the UK for the previous 12 months.
Included among those with access to this data are HMRC. A legal challenge to the bill has been proposed but, for now, HMRC have access to every taxpayer’s web browsing history.
In order to collate and review this information, HMRC have also launched a new supercomputer Connect’. This system has been specifically designed to upload a taxpayer’s key income details from various government bodies and third party sources.
Connect will have access to a huge amount of data, to include some of the more familiar names which we use in our everyday lives:
Land Registry
DVLA
eBay
Airbnb
Various social media platforms
Visa/MasterCard transactions
Put simply, Connect is a state-of-the-art analytical and sorting computer system that can identify those who have paid too little tax.
At a cost of £100 million, the capabilities of this software are impressive; it is currently being used to create a profile of each taxpayer’s anticipated income and can trace electronic footprints based on data gathered.
Whilst we are now in 2017 this does feel like 1984!
With the developments in HMRC’s systems, comes a greater capability to identify perceived errors/discrepancies and ultimately, launch investigations into self-assessment tax returns.
We have long since anticipated the increased sophistication in HMRC’s powers. The self-assessment process is unfortunately often overlooked by many taxpayers (and some accountants) as a simple compliance procedure with little attention to detail when reporting key information to HMRC.
It is clear, that implementing thorough procedures and understanding the information to be reported to HMRC reduces the risk of tax investigations; we can testify to this from our own processes and experience.
Connect has already been used to send automated letters warning taxpayers that HMRC are aware of unreported bank interest which has been omitted from tax returns and with the system now fully operational, it will be used to identify whether a taxpayer is liable to a tax evasion or avoidance enquiry challenge.
Similarly, it is hoped that Connect will help HMRC reduce the cost of investigations and narrow the tax gap to quickly repay the cost of the new system. HMRC have committed to using the new software to pre-populate taxpayer’s online accounts, so that there is no requirement to provide duplicate details of information already reported by third party sources.
However, with the technology and laws now in HMRC’s favour, it has never been more important to ensure both accurate reporting and full disclosure. By applying a systematic procedure to our client’s tax returns year on year, we believe this is the key to avoiding unwarranted HMRC investigations; these procedures have been specifically developed to manage the increasing risk of enquiries and associated penalties.
