HMRC launched 1,007 prosecutions against individuals last year, beating its target (1,000) for the sixth year in a row. The huge volume of prosecutions shows that HMRC has got few qualms about seeking the ultimate sanction against individuals it feels has underpaid tax.
The number of prosecutions launched by HMRC could increase even further in the coming years. HMRC has an increasingly amount of data on taxpayers at its disposal which can be used to both investigate and prosecute them.
An important new source of data for HMRC is on individuals’ offshore bank accounts, which over 150 countries have agreed to share as part of a global transparency drive.
But that is not the only way HMRC is collecting data on individuals. For example, if you’re somebody who does some part time trading on eBay or Amazon HMRC now has access to all the data it could need about your trading activity courtesy of those companies themselves. Or if you own a buy-to-let property that you rent through an estate agent then HMRC will have received that information from your estate agent. This data can then be cross-referenced with tax returns.
So what does HMRC’s growing data resources mean for individual taxpayers? HMRC’s software, allowing them to cross-reference information on tax returns filed by individuals with other information at its disposal, is improving all the time. Mistakes on tax returns are, therefore, more likely to be picked up than ever before, increasing the chance of taxpayers being investigated and potentially prosecuted.
This should be a concern: in a report earlier this year HMRC stated that where its investigations result in prosecution, more than 9 in 10 result in conviction. A conviction could mean additional tax liabilities, heavy penalties or even a prison sentence.
In the same report, HMRC also said that it will not hesitate to open investigations in appropriate cases, or where it wants to send a strong deterrent message.
Reducing the chance of being investigated by HMRC should, therefore, be a top priority for taxpayers. This is especially true as the investigations themselves can very time consuming, costly and stressful for individuals who may not have the resources to pay any legal fees.
Fortunately, there are simple steps that taxpayers can take, such a taking care when filing tax returns and regularly doing due diligence on any offshore income they have.
PfP are tax specialists and you can protect yourself against the cost of most tax investigations by subscribing to its Tax Investigation Service.