As I’ve warned before, HM Revenue & Customs can delve deeper into people’s financial affairs than ever before via its super computer HMRC Connect. This cutting edge £80million software mines our online personal data and cross-references it with a heap of other databases to root out fraudulent or undisclosed activity.
HMRC Connect holds more than 55billion items of data on taxpayers that it can compare against its own records to highlight discrepancies.
THP Chartered Accountants has previously warned that “the taxman is spying on you” as “HMRC Connect takes Big Brother surveillance to a completely new level”.
It said many people will find that “unsettling”. You bet they will.
The system is getting even more sophisticated after incorporating machine learning artificial intelligence (AI) to size up potential targets for investigations.
There is no hiding place overseas, with research by law firm Pinsent Masons showing that HMRC received 9.5 million disclosures of data about UK taxpayers from foreign tax authorities in 2022, up 48 per cent in just three years.
That’s only going to rise and rise. Especially with both the Conservative and Labour parties desperate to raise more cash if they win the election.
With Labour streaking ahead in the polls, they’re the ones to be worried about.
In April, shadow chancellor Rachel Reeves pledged that Labour would invest £555million to recruit more tax inspectors to reduce evasion and raise more than £5billion a year extra by the end of the next Parliament. You have been warned.
Money spent in tax investigations generates a huge return for HMRC, with every £1 bringing in £30 of tax.
No wonder the spies will be out in force. So make sure your tax affairs are squeaky clean, otherwise the consequences could be dire.
Steven Porter, head of tax disputes and investigations at Pinsent Masons, said HMRC collected an extra £1.6billion worth of tax last year by targeting avoidance schemes, and £83 million investigating trusts.
It also collected an extra £350million worth of inheritance tax, £570 million in capital gains tax and £86 million of additional stamp duty.
That was under the Tories. “Investigations have proven to be very successful for HMRC. It’s almost certainly going to push even harder in that area under the next Government,” Porter said.
While HMRC is mostly targeting wealthy tax dodgers, ordinary taxpayers and side hustlers may also get caught.
HMRC Connect collects taxpayers data from a range of sources including online retail platforms like eBay, Gumtree, Etsy and Vinty, property sales sites, social media platforms and online payments providers.
It also gathers data from banks, insurers, pension companies, airports and airlines, local authorities and other government departments.
And it still uses old school techniques to catch tax dodgers.
In the year to March 31, 2023, HMRC paid £509,000 to confidential informants providing evidence of tax fraud. Not every spy is a robot.
Porter said HMRC “is great at collecting data but it isn’t yet great at using it”, often leading to poorly-targeted investigations. “They can be immensely expensive and stressful for taxpayers who have done nothing wrong.”
As AI-based systems become more sophisticated, investigations should become more precise.
Most of this activity will affect the super wealthy, with the investigation into 93-year-old Formula One boss Bernie Ecclestone bringing in a staggering £652.6 million from 18 years dating back to 1994.
But ordinary taxpayers should also risk resist the temptation to place fast and loose with their tax returns, given HMRC’s data collecting abilities.
Brits are paying more tax than ever, with income tax, IHT and CGT bills all rising at speed.
That will only rise after the election, with Labour said to be planning as many as 12 tax increases if it wins.
Now HMRC is going after those who think they can make a little money on the side without telling the taxman.
The chances of doing that are shrinking all the time.
Tax expert Andy Wood at Crypto Tax Degens is warning that holiday let owners risk big fines or imprisonment under the latest HMRC crackdown. “In the 2023/24 tax year, HMRC opened almost 2,000 investigations into landlords letting out via Airbnb or other short let platforms, up from just 95 in 2021/22.”
Wood added: “This twentyfold increase indicates that tax authorities are paying much closer attention to people’s tax situations and are conducting more investigations accordingly.”
We may not like paying tax, especially with bills at a 70-year high. There are ways of reducing your exposure legally but make sure you play by the rules or HMRC’s robots could be coming for you.
