HMRC is fast becoming more interested in amassing data about UK taxpayers than in collecting ‘boring’ tax revenues. Set out below are some of main routes that HMRC uses to ‘get to know its customers’.
General information powers
Put simply, HMRC has formal powers to request any information or documentation ‘reasonably required to check a taxpayer’s tax position’ (FA 2008, Sch 36).
HMRC takes a very broad approach to what it thinks is ‘reasonably required’.
Note in particular:
• This power is not limited just to information on businesses, or just income tax, but basically applies to virtually any head of tax.
• It is not limited to a tax return enquiry (although they are frequently deployed during such enquiries).
• In fact, it can request information, etc., regarding liabilities either not yet included in a person’s tax return, or even on a future tax liability.
• HMRC doesn’t have to ask the taxpayer for the information: it can contact their bank, credit card company or similar intermediary for information specific to them (although it usually has to ask first; see below).
• HMRC can ask third parties about as-yet-unknown taxpayers, who may have been involved with particular financial transactions or invested in specified categories of financial products.
This is one of the main reasons why tax advisers and accountants generally recommend that you keep your private bank account(s) and your business bank account separate; you may well have personal expenditure that is no concern of HMRC’s.
Bulk data gathering
Some of the above requests of thirdparties can be quite voluminous, and potentially cover hundreds of a business’ clients.
However, HMRC can also (under FA 2011, Sch 23) require various ‘data holders’ to provide bulk transaction data on potentially all that data holder’s many thousands of customers or clients, for example:
• Letting agents issued with a notice to provide details of gross rents received for clients in a tax year, on a per-property, per-client basis.
• Property websites, to provide details of (say) all listings published in a year, and who listed them.
• Online platforms/intermediary sites such as Airbnb, eBay, or building trades ratings/listings.
• Credit reference agency data (e.g. Equifax credit rating, or similar) – likewise applications to mortgage providers.
• Customer lists for websites offering subscriptions to ‘luxury’ items or services – designer watches, fine wines – even charities.
Note that HMRC is able to specify exactly what information it wants. Such records are typically stored digitally, so HMRC can usually analyse individual transactions and tie them in to specific taxpayers with minimal effort and without human intervention.
However, one of the problems with websites such as eBay is that it is not always possible for simple data analysis to distinguish between the sale of privately-owned and used items (which would not be a trading activity) and the sale of items on a commercial basis (which might well be trading).
HMRC is understood to ‘scrape’ data from public-facing social media sites, to find keywords or phrases such as ‘luxury holiday’ or ‘business’. There are also many micro-businesses run from home that advertise predominantly on social media but will otherwise leave a negligible footprint (some readers will recall that, many years ago, local tax inspectors used to check their local newspapers,
newsagents’ and post offices’ notice boards for similar small-scale operations).
Other channels within HMRC
HMRC will be able to use information from new sources, for example:
• Stamp duty land tax returns paying the 3% higher rate for additional dwellings (or the devolved equivalents in Wales and Scotland);
• The new 30-day CGT return of disposal of UK residential property (introduced from 6 April 2020) may well trigger HMRC to enquire whether the property subject to CGT had historically been a source of letting income;
• The new trust registration service, which is to be used, broadly speaking, to provide details of trusts with assets, etc., generating a UK tax liability.
Other government departments
HMRC also receives information from:
• Local councils for details of properties rented to tenants in receipt of housing benefit and licensed lettings such as HMOs;
• HM Land Registry, with details of registered legal owners;
• Companies House, such as when new companies are formed, its registered office and its company officers;
• DVLA – to highlight expensive cars.
Increasingly, HMRC is exchanging taxpayer data with other tax authorities around the world, under the international exchange of information framework. More data is being exchanged, and it is subjected to more sophisticated analysis.
For example, another country’s tax authority may ask HMRC to request (and forward) financial information from
a UK bank or similar financial institution, about a taxpayer (a ‘financial institution notice’, or ‘FIN’). HMRC will in turn
expect other tax authorities to do the same when it lodges a similar request.
Source : e-magazine http://hmrctaxinvestigation.co.uk