How Does HMRC Expose Tax Evasion and Avoidance?

How Does HMRC Expose Tax Evasion?

What specific methods does HMRC use?

On December the 3rd 2012, the Government announced that HM Revenue and Customs (HMRC) will be allocated an additional £1billion in funding. The investment is intended to clamp down on and expose tax evasion and avoidance. It is expected that the aggressive new strategy will raise £22 billion a year by 2014/15 through increased compliance.

Here’s a selection of HMRC’s new tactics:


Introduced in 2008 and recently upgraded in 2011, CONNECT is HMRC’s advanced computer system used to chase unpaid tax.

The system can cross reference huge amounts of personal information ranging from bank accounts, loans, to property transactions. It can also sift through employment history and self-assessment records.

CONNECT allows HMRC to ensure that data collected by one part of the department can be used across all of its compliance areas, meaning that relationships can quickly and easily be uncovered between people and organisations that would otherwise remain hidden.

According to a speech made by the Exchequer, Connect has already generated around £1.4 billion in additional tax yield and is ‘at the forefront of the nation’s deficit reduction aims’.

Credit Reference Checks

One of the most effective tactics HMRC employs for catching tax evaders is cross-checking income declared on tax returns against spending patterns.

The tactic tends to identify self-employed workers who under-declare their income. But it has also proven successful in catching those who fail to declare money received through inheritance, bonuses, and offshore accounts.

The Autumn Statement revealed that around 20,000 people will have their credit files covertly checked under a new pilot scheme due to be launched in early 2013.

Informants / Bounty Payments

Since the financial collapse of 2008, HMRC has paid over £1 million in rewards to members of the public for information relating to tax evasion. Hundreds of people a year are rewarded for informing, yet the payments are not widely publicized and the scheme is often downplayed or even denied by officials.

A spokesman from the HMRC has said that informants are often estranged spouses, ex-business partners, and disgruntled employees.

The sum of the reward depends on how much HMRC gains through its investigation, and it is only paid out once taxes have successfully been recouped.

HMRC declines to give up-to-date, detailed figures on how successful this incentive is. But it has said that a total of £42 million of unpaid tax was recovered between 2005 and 2009 as a result of information received from an informant.

Offshore Assets and the OCU

Investing in offshore assets is one of the most common ways that people try to evade tax. Reacting against this, HMRC has invested heavily in recent years in targeting those with offshore accounts and properties as potential evaders.

In 2011, HMRC set up a specialist investigation team called the Offshore Co-Ordination Unit (OCU).

The OCU was formed after HMRC made deals with the Liechtenstein and Swiss governments, and the Birmingham based team’s first major undertaking was to investigate 6,000 HSBC Swiss bank account holders. Letters were sent to all of the account holders, giving them an opportunity to come clean about any unpaid tax with the threat of facing an intrusive tax enquiry.

Property Investigations

HMRC has announced that investigations into income generated by property will be stepped up in the new year. For the first time, Letting Agents are being told to supply rental details for the year ended 5 April 2012, including the name and address of landlords and the total gross rent received from the tenant.

There has also been a stronger enforcement of Capital Gains Tax (CGT) in recent months, particularly where a homeowner sells their main residence.

Please feel free to contact TaxAgility on 02087802349 should you require any further information.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

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