There can be many signs indicating a serious HMRC investigation is on the horizon. Often, a person wants to believe that HMRC haven’t identified and won’t identify a problem. So how does a person become the subject of a serious HMRC investigation?
HMRC collects a lot of data from various government sources including: council tax, electoral role, companies house, passport agency, land registry, planning applications, licensing authorities etc.
HMRC has at its disposal a lot of data, which it can link to connected persons and risk assess. Schedule 23 Finance Act 2011 allowed HMRC to collect information from 16 broad categories of person with which to permit them to check other persons tax positions. In 2016 the categories were widened to include electronic payment providers and facilitators of those transactions – targeted at online transactions.
HMRC have the tax returns of individuals and connected businesses. They also have financial information on similar businesses with which to compare against another.
More recently, HMRC have started receiving information from offshore jurisdictions through inter-governmental agreements.
To assist with the task of collating this information, HMRC invested in analytical software, fondly known as ‘Connect’ in 2010. During the past nine years, an enormous amount of funds have been deployed into developing and refining the software.
Connect is used to identify taxpayers to be the subject of an enquiry or even a behind the scenes HMRC investigation. At some point, HMRC will open an enquiry. It is not always the subject of an enquiry that is the main target, for example, HMRC may enquire into a company’s tax affairs when they are more interested in the shareholder’s or director’s tax affairs.