HMRC Connect: what does it mean for you?

 In News

In his endless quest to increase receipts, the Tax Man has a new weapon at his disposal, designed to spot undeclared income quickly and easily. Making use of the many public and private data stores that hold details about businesses and self-employed individuals, HMRC’s new Connect system reduces the time needed to perform a background income and outgoing check to a few minutes.

In days gone by

In the past, HMRC would have begun routine background investigations on individuals and organisations, usually as a result of a tip-off from the public, or after noticing unusual trends in tax returns. They would then have to go through a number of hurdles, obtaining information from banks, customers, suppliers and other sources to check whether there was evidence of undeclared income.

With so many parties involved, these checks were slow and costly, causing problems for HMRC and the organisation under investigation.

And then along came Connect

Realising that many organisations already hold vast data sets on the expenditure and shopping habits of their customers, the Government launched the Connect project, designed to query each of these data stores almost instantaneously. Using Connect, HMRC is able to hook directly into various government databases, like the Land Registry and the DVLA, to flag discrepancies between those records and tax returns.

Having proven the value of the system, HMRC will also be able to access private databases from next September (2016). This means that HMRC will be able to hook directly into UK bank account data for instance, making it even easier to compare incomings, outgoings and the sums declared on tax returns.

Connect is already in operation, and HMRC are said to be able to perform accurate analysis and comparison of background financials within seconds. This means that the whole process is much more efficient and effective, and that many more people are likely to get caught for tax evasion and undeclared income in future.

Going global

Looking slightly further ahead, the government has further extended the reach of Connect so that HMRC will have permission to access financial data held in 60 countries across the world. Individuals will find it much harder to “hide” earnings offshore, helping HMRC claw back undeclared income that would have been virtually impossible to identify in the past.

What else can Connect see?

Connect searches routinely look at credit card transactions, car data and activities on Internet marketplaces like Ebay or Gumtree to identify ‘suspiciously high levels of activity’, indicating income that needs to be declared.

In some cases, Connect will also be used to trawl social media profiles to identify evidence of spending, travel and other undeclared assets. Although still rare, the success of Connect trials indicate that social media will play an increasingly important part in the evidence gathering process.

Tax returns are a notoriously complex activity, and it is little wonder that mistakes are made – unfortunately Connect makes no allowances, and those identified as having suspicious banking activities may find themselves subject to a full investigation. To avoid such problems, most self-employed individuals and small businesses will be better off combining the services of a professional accountant and a modern accounting software package, to avoid mistakes occurring in the first place.

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