skip to navigationskip to main content

Phone: 0191 5678129 

Email:

Where does HMRC get its information from?

Newsletter issue - August 2022

With tax revenues down and a significant budget deficit arising from the Covid-19 pandemic, it will not come as a surprise to learn that HMRC are looking to undertake more enquiries into taxpayer's affairs than ever before. For example, HMRC has a specialist 'Offshore Co-Ordination Unit' department staffed with analysts, technical tax experts and experienced investigators.

However, not only persons with offshore interests can attract HMRC's unwanted attention. The ability of HMRC's Connect database to identify links between businesses, shareholders, properties, families and across different government departments is increasing in its sophistication such that anyone who has not declared all of their income could become subject to an enquiry; the majority of cases (over 90%) are initiated by information and analysis generated by Connect. Therefore if a request for information is received, it is more than likely that HMRC already has some information indicating non declaration for which the taxpayer's input or confirmation is required. If non compliance is found penalties can reach 100% of the amount undeclared plus interest.

The reason for the enquiry will always fall into one of the following three categories:

  • where some figures on the tax return do not match with other information HMRC has at their disposal
  • A late submitted return (enabling a longer enquiry time), or
  • HMRC has received a 'tip off'.

Possible leads

HMRC obtain its information from various sources feeding into HMRC's Connect computer programme which incorporates analytical tools using analytical methods. The software looks for keywords or phrases such as 'luxury holiday' or 'business' on social media sites, checking names, phone numbers, addresses with information declared on tax returns submitted. Discrepancies can lead to an investigation.

For example, the Land Registry is one of the prime sources for enquiries into landlords and second homers tax affairs. Information is checked against voting and other Local Authority registers, identifying not only purchasers of properties but also whether the properties have been let. If the properties have been let but nothing is shown on the tax return (even if a loss is made the income still needs to be declared but not if the property income is less than £1,000) that may result in HMRC sending out an enquiry letter. Information can also be obtained from letting agents who can be issued with a notice to provide details of gross rents received for clients in a tax year, on a per-property, per-client basis. Even information obtained from a local authority Planning Department showing the purpose of a property acquisition can be checked. If a purchase is shown to have been made and an application made for improvements subsequently, then this could be seen as renovation before letting. Interest-bearing accounts opened to take the income from lettings, for example, are a source of information for HMRC, as are details of insurance receipts.

Online platforms/intermediary sites such as Airbnb, eBay, or building trades ratings/listings are reviewed as well as credit reference agency data and applications to mortgage providers. Google Maps is known to be a source of information for HMRC investigators. The site is used to assess whether a taxpayer's property and lifestyle are consistent with the level of declared earnings (e.g. a new car parked outside a property or a large extension pictured that does not support the income declared on a tax return). Businesses set up during the pandemic (possibly from home) that advertise predominantly on social media but have not been declared on the 2020/21 and/or 2021/22 tax returns may also be of interest to HMRC. The usual cash businesses such as private taxi firms, pubs, corner shops and takeaways are vulnerable to enquiry but anyone not declaring all of their income could receive an enquiry letter.

'Deliberate Defaulters'

Taxpayers with undeclared income of more than £25,000 who have received penalties for deliberate errors in their tax returns or for deliberately failing to comply with their tax obligations are termed 'Deliberate Defaulters'. Such taxpayers have their name and address published online.

Practical point

Consider purchasing Tax Investigation insurance which will pay your accountants fees should you be subject to an enquiry.

Choosing a Service

Choosing an accountant that matches your needs

Meet our team

Go through our accountancy team, and see what they are

Free Initial Consultation

Understanding your accountancy requirements

Request a Callback

Lets talk at a more convenient time for you

Great reasons and promises we make to you which is why you should call us before deciding on your accountant.

Our Promises

We’re a dedicated team which strives to provide success to our clients in regards to all their accountancy needs.

Meet our team
footer_icons_artwork

Compliance and Advice

We believe you should always be control of your fees with no surprises. You are entitled to a competitive fixed quote for agreed services, which is exactly what we charge, no a penny more.

Fixed Price Accounting

We'll help you obtain clear goals in the long, medium and short term for what you want to achieve and identify the challenges in the plan and put strategies in place to overcome them.

Tailored Advice

Each business is unique and the challenges they face will be particular to your business and sector and as such our business advice is tailored to be a precise fit for you and your organisation.

Newsletter Subscription

Our monthly newsletter is full of news, views and interesting information from Michael Adamson & Co. Find out more by visiting our newsletter signup form.