Joined up thinking
Back in the good old days of local offices your tax records were held by whatever district covered that income and any liaison between offices was on more of a ‘need to know’ basis. But in 2009 HMRC introduced their ‘state of the art’ super computer system, Connect. And that’s exactly what it does, it connects all your information together and it is now being fully deployed by HMRC.
The obvious connection is the ability to link together all tax departments, self assessment, PAYE, corporation tax, VAT, NI etc. That list also includes benefits, tax credits and any child maintenance payments through the CSA. A lot of that is income that you have declared to HMRC via various returns – but are they correct? Connect can check that.
The system will link to the banks including overseas establishments and in December 2016 HMRC sent letters to 10000 individuals who had submitted their 2014-15 tax return without a complete declaration of savings interest. In 2014-15 bank interest had already been taxed at source but now it is paid gross and potentially taxable. It also links to Companies House which gives access to details of directors, shareholders and from there potential dividends.
There are links to other government agencies such as the Land Registry so HMRC know which properties are registered in your name and they know which one is your principal private residence, so who lives in the others? That can be picked up from the connection to the Electoral Role. If your tenants are receiving housing benefit that’s traceable too. And if it’s a holiday let there’s also a link to Airbnb.
Any potential trading online is also traceable. Links to Amazon, Ebay and Gumtree will pull together any trends in your buying and selling. So if you are, for instance, buying old furniture, renovating it and selling it then Connect will pick up a pattern which HMRC may then link to an undeclared trade. And of course, this online commerce invariably links to payments via providers such as Paypal or via card payments.
Then there’s the whole life style aspect. Connect also links to Facebook, Twitter, You Tube etc and also to the DVLA. So when you have You Tube videos of your exotic foreign holidays and photographs on Facebook of your brand new Audi R8 (I wish) it’s all there as evidence. No point in claiming that your business is making losses that year!
Is it used and does it work? Well yes. There are lots of figures to prove that. HMRC collected £845 million from self assessment investigation activities in 2013-14 alone. They have secured £100bn from tax evasion and avoidance compliance activities over 5 years. They have recruited 200 extra ‘criminal investigators’, increased prosecution numbers from 165pa to 1165pa in four years and now win more than 80% of cases in tax tribunals. A lot of HMRC work is now compliance based and assessed by risk and it’s this clever piece of kit that’s doing the assessing.