HMRC taskforces collect £109m in unpaid tax- who will be next?

Newly released statistics reveal that specialist HMRC taskforces have collected £109m in extra tax over the last six months alone. Such impressive results mean that the Revenue is likely to continue to invest money in these units, and increase the number of investigations launched.

As most accountants will be aware, taskforces are set up to target the underpayment of tax across specific industry sectors and geographical areas. They undertake intensive bursts of investigatory and surveillance work- usually lasting around nine months- to identify any causes for concern.

HMRC set up a total of 27 new taskforces between April and October of this year, targeting a range of sectors and regions. Construction workers, taxi drivers and restaurants have found themselves a focus.

HMRC taskforces have an impressive track-record. The very first were established in 2011 and over 100 have been set up since then. Over £400 million has been collected as a result of their efforts. One taskforce alone has generated over 20 arrests.

Taskforces can undertake aggressive investigatory work. Teams can turn up at any time, announced or unannounced, to inspect premises and accounts, in order to uncover taxes owed. They have a wide range of tools at their disposal to help identify any high risk targets. New powers have granted HMRC officers increased access to information held by websites and employers on workers and customers, for instance.

Taskforces can levy financial penalties of up to 100% of tax owed, so HMRC has significant potential to get a good return on its investment.

Experts predict that lawyers and a wider range of landlords could be the next targets for these specialist investigatory units, having recently been the subjects of voluntary disclosure campaigns. Often, a taskforce will step in once a declared tax ‘amnesty’ period comes to a close. Any taxpayer under suspicion who has failed to take advantage of a campaign is likely to receive particularly intense scrutiny.

With HMRC clamping down so intensively on a range of targets across different sectors and locations, many innocent clients are likely to be caught in the crossfire.

Connect generates £3 billion in additional tax revenue for HMRC

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. The system has paid for itself almost 38 times over which means the Revenue is likely to continue to invest heavily in the system. As a result, more innocent clients could find themselves under the spotlight; the rigidity of a database system means that red flags may be raised on a taxpayer’s affairs where there is no real cause for concern.

As most accountants will know, 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 tasked with gleaning insights from the information collected.

Connect now automatically collates information from 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- a tax disclosure facility set up for medical professionals – for instance.

The system also allows HMRC to ‘zoom in’ and keep tabs on taxpayers’ day-to-day activities. Officials can even track ticket sales and passenger information supplied by airline companies. Frequent flights are likely to raise question about how an individual is funding a jet-set lifestyle while regular trips to known tax havens- such as the British Virgin Islands or 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 held by a taxpayer 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 feel a lifestyle does not fit 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 real-life 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 provided by these individuals could mean that a larger number of unsubstantiated claims are looked into.  Connect, of course, could be misled by the same ‘false flags’ causing the informants to suspect tax evasion.

With the threat of an investigation mounting, more taxpayers are opting to protect themselves by taking out insurance.