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Taxman turns snooper

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Her Majesty’s Revenue & Customs service is getting tough with people it thinks may be resorting to unacceptable methods of avoiding tax. Its secret weapon is a “break-through” computer system, known as ‘Connect’, which has been created for HMRC by BAE Systems, the defence contractor.

HMRC has connections with the electoral roll and with a wide range of databases, including those of the Land Registry and Companies House; and 3,000 Connect analysts in offices around the country use the system to identify significant relationships between the various sets of data in a way which would be impossible without the use of technology.

An example of the application of Connect is inheritance tax.  HMRC receives 300,000 paper returns every year, most claiming to relate to estates which fall below the tax threshold. Connect enables HMRC to sift through information on property transactions, company ownerships, loans, bank accounts, employment history and self-assessment records to indentify under-declarations.

More conventional methods are also used. Spot checks are carried out by tax inspectors posing as customers of businesses where cash changes hands, such as hairdressers and restaurants. Tip-offs are another source of useful information.

Ownership of overseas property may also trigger the interest of HMRC if it appears that the cost could not be afforded by legitimate means. Foreign bank accounts will be checked, utilising information gained from overseas tax authorities with which the UK has reciprocal agreements.

If you want to sleep easy at night, honesty is clearly the best policy.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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