Do you ever wonder what the taxman actually knows about you? The answer is quite a lot. HMRC have spent years developing software that scours banks of data for personal and commercial information. The software (known as Connect) seeks links between individual taxpayers and businesses, income, assets and transactions. Connect will then match its findings against the information the taxpayer has provided through their tax return. Discrepancies are flagged and could prompt a tax investigation.
This all happens in a matter of seconds and searches are undertaken repeatedly to capture new information. Here’s what the taxman knows about you:
Your income and pensions – The main feature of Connect is to hunt for income discrepancies. It will have information on your bank balances and income and it will match this with other information detailed in your tax return and PAYE data submitted by your employer.
Your property – HMRC has access to Land Registry databases. This means they know the price you paid for a property and who your mortgage lender is, if you have one. By having access to these records, HMRC can cross-reference stamp duty records and identify where capital gains have arisen and not been reported.
Your business – HMRC have the ability to look through a four year credit card history of small businesses. This means that the taxman can check that your disclosed expenses match up with your electronic record.
Your bank accounts, savings and investments – banks and financial institutions report the interest paid to individuals across millions of accounts to HMRC. This data will then be analysed by HMRC’s Connect to detect undeclared, taxable savings income.
The taxman will also have eyes on your pension contributions. If you are claiming tax relief and you are disclosing this on your tax return, Connect will want to see a parallel increase in the balance held by your pension provider.
Connect’s powers don’t just end in the UK. From September 2016, HMRC will have access to files held by banks and financial institutions based in British overseas territories, such as the Channel Islands. This will expand to global accessibility by 2017.
Will it be successful? – It has been so far, as the number of tax investigations triggered by Connect is increasing, however, can this continue to be efficient on a global scale? Many do have their doubts as there is a possibility that some of the data could be inaccurate, potentially causing an increase in the numbers of pointless and costly tax investigations.
Ever heard of Fee Protection? – Fee protection insurance protects you from fees you may have to pay if HMRC launch an investigation into you or your business. It’s that simple. With some enquiries running into tens of thousands of pounds, it’s better to be safe than sorry.
For more information or advice on Fee Protection insurance, please get in touch with our tax team by emailing firstname.lastname@example.org or call Julie Walsh on 01254 679131.