Big Brother is watching – 10 ways HMRC can detect tax dodges

11 Jul 2017

The Financial Times has published an article highlighting the 10 traditional and high tech methods HMRC can use to find out if you’re cheating on your taxes:

1. Data searches - HMRC's 'Connect' computer programme ploughs through a number of data sources in a search for underpaid taxes, such as Land Registry records, credit card data, bank interest etc.

2. New laws - The new 'common reporting standards' coming into effect in September will give HMRC greater access to information pertaining to offshore bank accounts - income earned, bank balances, interest, dividends - held by UK citizens.

3. The "hidden economy" - Plans are already underway to increase the number prosecutions of workers with "ghost" earnings and "moonlighters" who don't declare a second source of income

4. Naming and shaming - HMRC now publishes details of "deliberate tax defaulters"; those who’ve received penalties either for what they consider to be either deliberate errors in their tax returns or deliberate failure to comply with their tax obligations. There is now also a "strict liability offence" with tougher new penalties for offshore tax evasion involving at least £25,000, even where there is no immediate evidence the evasion was deliberate.

5. Fraud and evasion hotline - In April, the Revenue launched a new service which enables the public to report evasion and tax fraud, including PAYE and National Insurance, undisclosed offshore investments, non-payments of the National Minimum Wage, tax credit fraud and VAT fraud.

6. Data leaks - The "Lagarde list" and the "Panama Papers" are just two more recent examples where data relating to individuals linked to offshore financial centres was leaked to HMRC by often undisclosed sources.

7. Digital transformation - HMRC is targeting small and medium sized businesses (SMEs) in an attempt to close the "tax gap", which is the amount actually collected vs the amount that should be collected by the taxman. Whilst the 'making tax digital' system may encourage more accurate reporting, it is also an additional way for HMRC to check up on SMEs by, for example, drawing comparisons between financial results of similar companies in a search for irregularities.

8. Online platforms - Social media and other online resources are providing HMRC investigators with a huge amount of information about people's lifestyles, helping them to detect incongruous behaviour.

9. Suspicious Activity Reports (SARs) - Here, businesses can report any suspicious transaction or activity to HMRC concerning acts of possible money laundering or terrorist financing. Banks and financial institutions are the main source of SARs filing for HMRC.

10. Forced declarations - High net worth individuals (HNWI) in the UK do not need to provide information about their assets in their tax returns. This, HMRC says, is making it hard for them to collect "the right amount of tax". Whilst HMRC has access to other sources of data to help it understand the risks associated with an HNWI taxpayer, up to now they have felt they do not have the full picture. HMRC has therefore been looking at what further information HNWIs could be required to report to help improve its understanding of their wealth. The new transparency rules for offshore accounts will provide a valuable source of information, as well information pertaining to UK trusts.

With HMRC undertaking this more relentless approach towards combatting tax evasion, Jason Collins of law firm Pinsent Masons, tells the FT: "The Revenue is really not pausing for breath."

Beavis Morgan – The tax experts

Whether you are in business as an individual or as a corporate, you will want to ensure that you pay no more tax than you are legally bound to do.

Our experts at Beavis Morgan can ensure your tax affairs are as efficient as possible to fit your circumstances. In addition, we can look ahead to retirement and inheritance tax planning.

In addition, if you are concerned about a tax enquiry into your affairs, worried that you may have possibly under declared or, worse still, you are already under enquiry, our tax specialists, some of whom are former HMRC Inspector of Taxes, are well versed in dealing with all types of tax issues.

We are also readily available to oversee HMRC disputes on your behalf, as well as to represent clients in appeal proceedings before the Tax Tribunal. In some situations we can also offer professional fee protection insurance, so the costs are covered in whole or in part.

For more information and to discuss your tax affairs in further detail, contact Alan Ford or Paul Attridge your usual Beavis Morgan Partner.

Source: Financial Times - Ten ways HMRC can tell if you’re a tax cheat