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Don’t go knocking on my door: Current HMRC activity

By admin
01 Oct 2015
Tax Investigation

It’s a poor but innovative introduction to an article:

Oh baby, baby……

My tax bill is killing me
I must confess, I still can’t believe
How much I pay, I lose my mind
Give me a sign
Tax me baby one more time…..

Well, almost in the words of the slightly dated and drowned out Ms Spears, who is not a UK resident, you might get taxed more than one time. This appears to be the unfortunate situation for many people who undertook tax planning: We recently found a number of not Britney fans who confessed that the advice given to them was “toxic” and now feel “like a slave for HMRC” and have realised that the government were not “born to make them happy”.

This week articles considers HMRC’s approach for selection, the information at their hands and the areas currently subjected to specific scrutiny (on top of disclosure campaigns, tax avoidance schemes and offshore tax evasion).

We are happy to discuss on a no obligations basis any enquiries your clients face.

It is essential that advisers are aware of what HMRC are up to currently.

Why? Consider the employee benefit settlement opportunity, which was based on HMRC’s current (it took them over a decade to find) interpretation. That opportunity has closed and those who may have tried to be within it or only now realise that they are potentially within it are at risk of a different tax treatment or penalty. However, consider further where an Employee Benefit Trusts (EBT) arrangement was used and funds lent to individuals who reinvested those funds in businesses that were not successful. The borrower was sadly the same company that sponsored the EBT all be it through a redeemable preference share arrangement.

HMRC contend that a PAYE charge arises. If we look through the situation, the only real tax avoided is in fact the corporation tax, if indeed a corporation tax deduction were sought. Is it fair then for HMRC to assess PAYE? If we further consider the remedial action of the General Anti-Abuse Rule (GAAR) panel to look through as if the transactions had not occurred thereby removing the tax advantage, that treatment seems to be in contrast to the treatment adopted when the shoe is on the other foot.

This is the fair tax system adopted under today’s policy of cracking down on tax avoidance, regardless of the fact that HMRC failed to counter the avoidance whilst fully aware of it for over a decade.

Gimme More

According to HMRC’s, the current tax gap of around £34bn is mainly attributed to:

  • Small and medium size enterprises 44%
  • Individuals 12%

HMRC have been given a fair amount of pocket money to deploy in targeting various areas:

  • £800m: non-compliance and tax evasion
  • £300m: small and medium-sized enterprises and high net worth individuals
  • £36m: trusts, pension schemes and non-domiciled individuals

Thankfully government departments are always inefficient or undermanned. Or are they? The proportion of HMRC personnel now involved in enforcement and compliance has grown considerably to over 26,000 an increase of around 2,000 over the past four years.


We thought Connect was impressive in the manner that it links information from many government sources, third party information and social media. We have anticipated the potential development and now it is here. Enter the Enterprise Data Hub. Apparently the new hub will have the capacity to hold ten times more. Some might think this is future proofing. The cynical would conclude that third party notices and foreign exchange information will be greater.

When I Found You

Data gathering powers are having another injection of steroids and the intention is to legislate to extend access to data held by business intermediaries and electronic payment providers. Broadly, this permits the identification of all those hidden transactions on internet market places! For example, business intermediaries includes those processing orders for hotel accommodation, holiday lets, food orders, ticket sales and so on and so forth.

Electronic payment providers facilitate payments through digital wallets. Accessing this information permits spying on shopping or on selling.

The information accessed should allow suppressed turnover and inaccurate VAT returns to be identified and quantified from the other side.

Perfect Lover

Wouldn’t it be great if each partner knew exactly what the other partner was doing (but maybe not thinking)? Well that would appear to be the relationship we will all potentially have with an Inspector of Taxes very soon. The data HMRC receives leads to targeted enquiries. When those enquiries are made, the enquiring officer is likely to know what figures in the accounts or tax return are wrong and even what they should be. The power of information is still being demonstrated in respect of let property, where HMRC served notices on management agencies and linked records to land registry, electoral roll and taxpayers.

However, an Inspector in possession of sales information declared to them under a third party notice without the knowledge of the taxpayer will likely stipulate account holders name, address, date, transaction details and financial amount. Big computer system automatically link the account holders name and address to tax records and their accounts and tax returns, and question, do the two add up?

We have also pointed out in some recent seminars that insurers can also be served with a notice to provide information. Enter the ability for the sales of any product underwritten to be provided to HMRC permitting them to work out sales for second hand cars (currently a motor industry taskforce has been working its magic), solar panels, electrical goods as well as even check whether employers are declaring benefits in kind (medical insurance etc.).


If it’s not bad enough HMRC having potentially enough information to prepare accounts and tax returns without the need for an agent, they then try for the next base: taskforces.

Taskforces focus on specific business sectors where HMRC suspects high risk tax evasion is taking place. The taskforce appear to be launched in one region and after some success launched in other regions.

The taskforces are a good example of how HMRC departments now work together given they are usually made up of direct tax and VAT specialist, benefits and agency, criminal investigators, litigators, police officers and border agency. This means that the departments are working tax irregularities as well as immigration and benefits fraud.

Taskforces are intelligence led: Risk and Intelligence Service, which is responsible for Connect, identify which sector and who in the sector is to be tickled by the taskforce team. Initially, a small number of cases are undertaken so that HMRC may refine and improve the case profile in readiness for a full taskforce deployment.

The current taskforces are as follows:

TaskforceLaunch date
Fraudulent VAT repayments in Northern England, Wales, London and the South EastApril 2015
Fraudulent income tax self-assessment repayments nationwideMay 2015
Illegal tobacco nationwideMay 2015
Restaurants in Northern England and WalesMay 2015
Hidden wealth in Northern IrelandJune 2015
Grocery and retail sector in Northern England and WalesJune 2015
Undeclared property sales in Northern England and WalesJuly 2015
Fraudulent VAT repayments in ScotlandJuly 2015
Construction industry in London and the South EastJuly 2015
Hidden economy nationwideJuly 2015
Restaurants in London and the South EastJuly 2015
Fraudulent VAT repayments in South and South West of EnglandJuly 2015
Hidden wealth in ScotlandAugust 2015

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