Connect generates £3 billion in additional tax revenue for HMRC

HMRC has collected a total of £3 billion revenue as the result of enquiries that its £80m database system, Connect, has generated since 2008, according to a recent report.

This represents a return of 37.5:1 on HMRC’s investment, which means HMRC is likely to continue to rely on Connect to identify targets for it to investigate.

It is therefore likely that more innocent taxpayers will find themselves under the spotlight as the database system’s rigidity means that their affairs may come under scrutiny even when 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 currently employs more than 150 analysts to glean insights from the information collected.

Connect automatically collates information across 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, an example being insurance companies, hospitals and dentists supplying it with information pertinent to the Tax Health Plan.

The system also allows HMRC to inspect and record taxpayers’ day-to-day activities: ticket sales and passenger information supplied by airline companies are now tracked, as an example, and frequent flights are likely to raise questions about how an individual is funding a jet-set lifestyle. Regular trips to known tax havens such as Monaco are also likely to raise concerns.

HMRC also monitors involvement with charitable bodies via a direct link to the Charity Commission’s database; any payments linked to trusteeships will be reviewed to ensure they are declared in full at the appropriate time.

HMRC is also using social media to gather lifestyle information, including online posts about holidays, parties and purchases. If lifestyles appear not to match declared incomes and investigation is likely to be instigated.

Many of the leads generated by Connect’s collation of wide-ranging data are likely to merit HMRC’s attention, but a proportion will be unfounded and some investigations are likely to be triggered by other misleading factors.

HMRC is increasingly using Connect to establish whether leads supplied by everyday informants – via the online Tax Evasion Hotline – are credible. HMRC paid out record sums to informants, totalling more than £605,000 over the last year, so it is possible that some reports will be motivated by financial gain. Business rivalry is also a potential source of vindictive accusations of tax impropriety.

It is also probably that a desktop or surface analysis of data or online information might lead to misinterpretation, for example a Twitter or Facebook exaggeration could present a highly inaccurate view.

These factors – and others that can arise from increased reliance on an automated system to verify information – may mean that a larger number of unsubstantiated tax underpayment claims are registered.

The increased risk these data evaluation developments pose for ordinary taxpayers means that many are opting to protect themselves against the costs that may be incurred in a tax investigation.

Milsted Langdon recommends to all our clients that they consider taking out fee protection insurance which will cover our fees for dealing with HMRC if they are targeted for an investigation. Please contact us for more details.

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