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How does HMRC expose tax evasion and avoidance?

Over the last few years, the UK government has been making plans to clamp down on tax avoidance and tax evasion, with the latest package of measures announced in Budget 2018.

Also, the new strict liability offences for offshore tax evasion came into effect in 2018. This means failing to declare offshore income of more than £25,000 is now a criminal offence – the term ‘strict liability’ means HMRC doesn’t need to prove ‘mens rea’, that a taxpayer has criminal intent before they can be convicted of a criminal offence such as tax evasion.

In this post, we look at what HMRC can do to catch those who aren’t paying their fair share of tax and discuss a few methods which HMRC uses to find tax dodgers.

Connect

Introduced in 2010, Connect is the name of HMRC’s powerful computer system, designed to detect those who skip out on tax. It takes in vast amounts of financial data from websites, banks and other online sources, and then compares them against tax returns to look for undeclared income. For example, if you recently purchased an expensive car but have a low declared income, then Connect would see that purchase as unlikely and raise a flag.

As of 2017, HMRC can also force online platforms such as Airbnb and Amazon to relinquish customer data if it may help in catching tax evaders, and they are now cooperating with offshore tax havens to gather even more information. This makes it almost impossible to hide information from the system.

The “Offshore, Corporate & Wealthy” unit

The ‘Offshore, Corporate and Wealthy’ unit is a team of people tasked with tracking down those who use offshore accounts to avoid tax. They form part of HMRC’s Fraud Investigation Service, and look for either individuals or companies that hide significant wealth offshore.

The 2018 budget also stated that the government will publish an updated offshore tax compliance strategy, building on the progress already made in tackling offshore tax evasion.

Fraud hotline

People can give HMRC a call to report tax fraud and tax evasion. The numbers are 0800 788 887 (UK) and 0203 080 0871 (outside the UK). You can also report it online, or write to HMRC at Cardiff CF14 5ZN. Some informants are rewarded, and according to a post published by Financial Times, in the 2017-2018 tax year, there were 40,000 tip-offs and HMRC rewarded these informants with £343,500.

Data leakage

From Panama Papers to Paradise Papers, these documents revealed how rich people and close associates of many current and former heads of state and government launder money and avoid tax. Even the Queen was dragged into the scandal when the Paradise Papers revealed that millions of pounds from her private estate Duchy of Lancaster were invested in a Cayman Islands fund, sheltered from UK tax. According to ICAEW (Institute of Chartered Accountants in England and Wales), as a result of these leaks, HMRC has investigated many individuals in relation to tax evasion.

Contact Tax Agility

As HMRC aims to minimise the ‘tax gap’, ie the difference between the amount of tax it should receive vs what it actually received, it will continue to strengthen its policies and enhance the methods it uses to stop tax evasion.

In the event that you have forgotten to notify HMRC about your offshore income, get in touch with one of our experienced tax accountants right away, so we can work with you to notify HMRC and ensure that the return is correct.

To find out more about how we can help save you money, get in touch on 020 8108 0090 or fill out our Online Form.

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This article was first published on 19/12/2012 and updated on 23/01/2019.

This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.

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