Chat with us, powered by LiveChat

Tax Investigations – Why Did They Choose Me? 

With the impact of coronavirus bringing new grants, loans and schemes into play, it is only right to assume that new methods of tax avoidance and fraud have come into play. As well as these schemes, HMRC has seen the implementation of over 60 temporary policy changes or clarifications in response to the Coronavirus Pandemic. This means that now, more than ever, HMRC are not happy. 

For new schemes such as the SEISS and CJRS, HMRC said that they are “starting to investigate claims in depth.” Specifically, for CJRS claims, HMRC said they would pay close attention to claims that are “out of step” with the PAYE data that they hold.  Basically put, this means that if your CJRS claims do not fit with your previous records of PAYE for your employees then you are probably going to be investigated. 

There are a huge variety of reasons you may be investigated; from working in a target area or ticking certain boxes like several sources of income, inconsistent figures and higher or lower than expected figures. 

You’re probably thinking now what if I just don’t tell them? 

That is definitely not a good idea. In fact, if concealing income/assets is your game then you may as well just phone HMRC and ask them to investigate you now as you would almost definitely be receiving the dreaded brown envelope sometime in your future. 

This is because HMRC has new and more powerful ways to check if you’re cheating. 

Connect 

Connect is HMRC’s ultimate weapon in the fight against fraud. Connect is a computer program that sorts through huge amounts of data spotting patterns and details that would take a person months. It organises more data than is stored in the British Library and is capable of spotting minuscule trails of data that could indicate fraud. HMRC won’t reveal all the sources of data through which Connect extracts data; but it is thought to include bank interest details, credit card data and Land Registry reports.  

Connect was used to successfully identify a string of credit card transactions relating to a private London residence. A simple internet search revealed that the property was being used for an escort agency despite that, on record, it was owned by somebody with no tax history and a state pension as their only visible source of income. After an investigation, the owner admitted to trading there for at least six years with takings of more than £100,000 per year. 

It is also worth noting that HMRC is expanding its powers to extract information forcibly from organisations. It recently achieved the ability to force platforms such as Apple, Amazon and Airbnb to hand over data when requested. This means that HMRC can effectively get information on sellers and advertisers on these sites and use it to contribute to an investigation. 

International Tax Evasion Targets 

Whilst it was once possible to conceal an offshore bank account on an island in the middle of… well nowhere, now it definitely isn’tAn advance in the global fight of tax evasion means that HMRC is talking to other countries and getting more answers than ever. Details of bank balances, interest, dividends and certain types of income earnt will start to be sent to home governments. This will give HMRC more information to use in tax investigations. 

Ghosts and Moonlighters – Undeclared 

Undeclared economic activity loses HMRC billions of pounds every year to people who hide parts of or all their income. These people are known as ghosts (hiding all income) and moonlighters (hiding part of income) 

HMRC intends on using several strategies to deal with these people including; encouraging people to come forward with reduced fines, seeking access to new sources of information, and researching methods of encouraging third parties to help them identify tax avoiders. 

Informants 

HMRC then decided to launch a public hotline to allow the public to directly report tax evasion and fraud. A single hotline was created from the merging of two existing hotlines which is available to report all types of fraud and tax evasion. Informants can also be offered rewards; in the 2015-16 year, HMRC paid more than £460,000 to confidential informants. 

Fear and Guilt Tactics

Several tactics are used by HMRC to instil fear and guilt into tax-payers in order to encourage them to come forward. HMRC often offers to reduce penalties and sometimes no prosecution to people who come forward. On the other hand, they also come down harder than ever on people who still commit fraud and evasion. HMRC is constantly under pressure to produce results and in order to meet these targets, they aim to scare tax-payers with ever-stricter consequences. 

Another tactic now used by HMRC is naming and shaming those who evade more than £25,000 in tax. Every three months, lists on the HMRC website are updated with an individual’s name, address, nature of the business, period of evasion, amount of tax evaded and the penalty for the evasion. This means that if you are caught for evasion, even if you didn’t realise and mean it, your name is out there for the public to see. This in turn could seriously inhibit your chances of getting jobs in certain sectors; particularly financial positions. 

Social Media 

Perhaps the most frightening new tactic of HMRC is investigations including social media. If your declared income to HMRC does not seem to match your lifestyle on Social Media, you could be opening yourself up to investigation. For example, if you own a small limited company that makes an annual turnover of £100,000 but you jet off to Dubai with your family for a month and plaster your Facebook page with photos, HMRC might suspect that you’re hiding something. 

HMRC also use programs like Google Earth to spot large property extensions which don’t match the company profits you declared to them. This could cause them to start an investigation against you. 

The thing to note is that as technology advances and social media grows, HMRC is keen to stay up to date and use every program to their advantage. The best thing you can do is get a qualified, experienced accountant to handle your accounts so you don’t have to worry if the dreaded brown envelope is pushed through your door. 

Sam Jacka

Author Sam Jacka

More posts by Sam Jacka

Leave a Reply