HMRC has collected a total of £3 billion from enquiries generated by its multi-million pound database system, Connect, since 2008, according to a recent report.
This represents a return of 37.5:1 on investment and means the Revenue is likely to continue to rely on the system to identify targets for investigation. This could mean that more innocent taxpayers find themselves under the spotlight; the rigidity of the database system means that red flags may be raised on a taxpayer’s affairs where there is no real cause for concern.
Connect allows HMRC to cross-reference information supplied on tax returns with data on individuals’ and businesses’ finances stored elsewhere. It gathers information from multiple public and private sources, allowing for the quick identification of any discrepancies or possible under-reporting. HMRC has invested £80 million in the system since 2008 and currently employs over 150 analysts to help glean insights from the information collected.
Connect now automatically collates information over 30 databases, covering details of taxpayers’ salaries, bank accounts, loans, property and car ownership. HMRC also has powers to request one-off bulk data from third parties where there may be particular cause for concern. Insurance companies, hospitals and dentists supplied information to assist with the Tax Health Plan, for instance.
The system is also allowing HMRC to ‘zoom in’ and keep tabs on taxpayers’ day-to-day activities. Officials now track ticket sales and passenger information supplied by airline companies, for instance. Frequent flights are likely to raise question about how an individual is funding a jet-set lifestyle whilst regular trips to known tax havens- such as Monaco- are also likely to raise concerns.
Any involvement with charitable bodies is now also being tracked via a direct link to the Charities Commission database. Any payments linked to trusteeships will be monitored, to ensure that they are being declared in full.
Particularly striking is the gathering of information from social media. HMRC are now monitoring online posts about holidays, parties and purchases. They may wish to ask questions where they not feel lifestyle fits with an individual’s reported income.
Whilst many of the leads generated by Connect’s collation of wide-ranging data are likely to be worth following up, a proportion will be unfounded. A surface analysis of data or online information could quite easily lead to misinterpretation. An exaggeration over twitter or Facebook, for example, could paint a highly inaccurate picture.
The Revenue is increasingly using Connect to establish whether leads supplied by everyday informants-via the online Tax Evasion Hotline- are credible. HMRC is now paying out record sums to informants, handing out £605,000 over the last year, which means at least some reports will be motivated by financial gain. The increased reliance on an automated system to verify information could mean that a larger number of unsubstantiated claims are looked into.
The increased risk these developments pose for ordinary taxpayers means that many are opting to protect themselves against the costs that may be incurred in a tax investigation. You can protect yourself against the cost of most tax investigations by subscribing to our Tax investigation service.