Tax Evasion – HMRC techniques for discovery

Tax Evasion and improvements in detection

The subject of Tax evasion is an interesting one.

About ten years ago, I used to do some work for an internet marketing firm.

The owner and MD was an inspiration. He’d built up the business from a small website creation company of five people and won an impressive portfolio of blue-chip clients. He’d also invested in another online venture, subsequently selling his share for millions.

He wasn’t yet 40 but if he chose he was in a position never to have to work again.

He’s still working hard, and his business is thriving. He’s also a reliable source of great stories. One of his favourites was how a former business partner used to spend his days avoiding HMRC – even to the extent of hiding under the table when the taxman paid a visit.

I was reminded of this story when I read about how, according to law firm Pinsent Masons, HMRC property raids dropped by 30%.

It’s not because people became more law-abiding but because the taxman has developed effective and less expensive methods of gathering evidence.

Specifically, HMRC uses a state-of-the-art database called Connect, which was developed by BAe Systems and launched in the summer of 2010. This pulls together data from different sources, such as banks, social media and tax records and flags up businesses and individuals whose activities merit investigation.

It has been given real teeth when investigating tax evasion since the Common Reporting Standard, which has gifted the taxman huge amounts of information about UK residents with offshore bank accounts.

The system uses AI (or Artificial Intelligence) to get results, and HMRC is beginning to deploy it in more and more situations. It already analyses the accuracy of tax returns and has automated many millions of routine processes.

The significance of the Connect system is that it makes tax evasion easier to detect by using algorithms that spot suspicious patterns within milliseconds.

In other words, if your tax affairs aren’t in order, you’re much more likely to be discovered and investigated.

If you are singled out, you may have less success in avoiding the taxman by hiding under the table as he will likely already have significant evidence before he knocks on your door.

So, if you are worried that your financial affairs aren’t under control or your taxes aren’t properly accounted for, it’s best to take action before the Connect system flags you up as a concern.

Here at THP, we can help you make sure your books are compliant and watertight – get in touch with one of our accountants today, with offices in Sutton, Chelmsford, Wanstead, and Saffron Walden.