JULY 2015 - Big Brother is watching you
After yet another Budget with significant tax changes I was reflecting on one area that has not fundamentally changed. HMRC have always received tip offs whether from disgruntled ex employees or disgruntled ex spouses or even nosey neighbours. HMRC is now paying out record sums to informants reporting on people they suspect of underpaying tax.
Payments to HMRC informants totalled £605,000 over the last year (to March 31 2015), up from £402,000 the year before, and £395,000 in 2012/13. Around 100,000 calls were made to HMRC’s confidential telephone hotline over the last year.
The lure of a substantial financial reward means more members of the public will be tempted to come forward to the Revenue with their concerns about those perceived to be “on the fiddle”. Some of these may be true however a great number will just be spurious and an increasing number of innocent taxpayers are likely to face investigation as a result.
Recent tax evasion scandals mean that the Revenue is under increased pressure to follow-up leads and show that it has acted on all tip offs no matter the quality.
The extra money paid out indicates HMRC is clamping down on a much wider range of taxpayers. It is no longer just the really wealthy and those involved in traditional cash-in-hand businesses - rewards will be paid out for information on any taxpayer.
Following up informants’ reports will have been made easier by HMRC’s recent investment in technology. Its new multi-million pound database system, Connect, gathers real time data from multiple public and private sources to help identify where underpayment of tax may be an issue. Information is drawn from banks, local councils, legal aid data and even social media. Connect is a very powerful tool for HMRC.
Rather than having to scrutinise each tax return individually, the Connect database helps HMRC to zoom in on ‘outliers’ within a particular group. These are individuals or businesses reporting lower profits or incomes than their peers, or whose expenses seem unusually high.
Those of us working in the tax profession have long been aware of the information sources available to HMRC. Connect takes these to a greater level. Tax avoiders of all natures have really nowhere to hide. Even traditional tax havens are now sharing details with HMRC. At least those generally still have some decent weather to make them attractive!