Lexicon Tax

HMRC Connect

What is HMRC Connect?

The HMRC Connect Computer System is a supercomputer and analysing tool that was developed over many years with more than £100m invested into it. This supercomputer system was designed for HMRC to improve their ability to identify individuals that are understating or underpaying their tax liability. The system was first fully deployed in 2017 to be used on tax returns that were filed for 2015-16. Since its launch, the Connect system is said to have recovered more than £4bn in taxes.

In fact it is estimated that 90% of investigations are as a result of the Connect Intelligence tool. Think of it as the AI of the tax world.

The system is split into two distinct parts.

ACE (Analytical Compliance Environment): an environment that allows a small number of specialist analysts to manipulate, analyse and profile data. Tax information data is put into the ACE environment to match live claims against HMRC and third-party data. This helps HMRC identify any undeclared partners, directors, landlords, claimants living abroad and people with private bank accounts, indicating potential undeclared wealth.

ICE (Integrated Compliance Environment): a visualisation tool that displays linked data, shown as images on screen, with the results used to enable further targeted risk assessment.

 

What does the Connect system do?

Before the system was launched HMRC would have had to rely solely on the information provided in your tax returns or they would have to start a detailed investigation into an individual they may find suspicious or receive a tip-off about. Now, HMRC can scrutinise taxpayers by drawing on huge swaths of information that the Connect system collects.

To gain an idea of a taxpayer’s expenditure, this system collects data from government and corporate sources, as well as your social media profiles. If the information held by the Connect system does not necessarily line up with a tax return that has been submitted, then the account for that individual Is flagged and can be subject to a further investigation.

This step is helpful for HMRC as it can clear up a slight concern that HMRC may have (that an individual may be understating their tax) if Connect flags an account that may have otherwise gone by undetected.

  • The system is used by around 4,000 staff in HMRC directly and most staff involved in investigations have access to it indirectly.

 

What information does HMRC have access to?

HMRC can now collect data from banks, peer-to-peer lender and even platforms like Airbnb to build a more comprehensive image of your spending. They also have access to Land Registry records to see if you’ve purchased any properties and whether you’re likely to be able to afford them.

But that’s not all. As previously mentioned, HMRC can even access public information you post on your social media accounts such as Facebook, Twitter, and Instagram as well as many other things such as:

  • Information on all payments on Visa and MasterCard transactions.
  • Details of all vehicles purchased and owned in your DVLA records.
  • UK and overseas bank records: HMRC can access information from banks in over 60 countries.
  • Any internal tax documents such as details of your council tax, any VAT registrations, and previous tax returns and investigations. Data from Customs which would seem obvious.
  • All your earnings from casual employers, details of company benefits, child benefits and maintenance payments and any other benefits.
  • Data held by credit referencing agencies.
  • Data from over 110 foreign countries regarding any assets and income you may have in the other country. This is huge, especially for anyone thinking they can just hide their assets abroad.
  • Border Agency data and travel information from flight sales and passenger manifests
  • Council tax records and electoral roll
  • Insurance companies
  • Google street view
  • Companies House
  • Any of your online trading platforms such as Amazon, eBay, Gumtree etc
  • Adverts on sites like Rightmove, Zoopla, Openrent, Shpock.
  • And even your web browsing and email records. Yes, they can see what you say and do on the internet. The ‘Snooper Charter’ allows HMRC access to your location data, texts, calls, emails, and internet history.

 

The system doesn’t just stop there. It can expand infinitely to every single link to anyone or anything you are linked to and snoop into them too.

HMRC is looking to use Artificial Intelligence (AI) to make further advances in their Connect system.

This means that now, any preliminary work that could’ve taken HMRC investigators weeks or months to do can now be done in a matter of seconds and allow them to evaluate and compare the data to what is declared by a taxpayer and decide whether to start an investigation and at what level.

 

How do I reduce my risks?

There are several ways taxpayers can try to reduce their risk of a long, drawn-out investigation which can come with associated costs involved, stress and time taken away from running their businesses or their personal and family life. HMRC ‘s job is to ensure that taxpayers correctly declare and pay their tax bills. Here are examples of how you can reduce your risk.

  • Make sure to keep good records of your business and personal transactions, including invoices, payment records, receipts etc.
  • If you have failed to correctly declare overseas income and gains, you should consider making a voluntary disclosure using the worldwide disclosure facility, this can help minimise the penalties you may receive. The requirement to correct (RTC) guidance introduced severe potential penalties for mistakes or deliberate false information.
  • Using the ‘Any other information’ box on your tax return to provide further information or clarification of transactions on the return, to assist in dispelling misinterpretation or misjudgement of information thrown up by Connect.
  • You could consider obtaining professional fees insurance to protect against the substantial costs of defending an enquiry by HMRC and possible litigation fees.

 

Connect is going to be HMRC’s weapon of choice, giving HMRC a powerful tool to combat people hiding income or providing false information. Lexicon Tax can protect clients from unnecessary intrusion into their personal and business lives, reduce their risk of an investigation and minimise the any tax due. Particularly penalties via one of the various disclosure routes and amnesties available to bring your tax affairs up to date with favourable terms.

So if you have unresolved tax issues, don’t bury your head in the sand. The taxman will come knocking. It’s not a matter of if but when.

Contact Lexicon Tax today on 01144 000192 to see how we can help get your tax affairs in order before the heavy hand of HMRC.