Is HMRC’s Tax Evasion Friend Really Electric?

There is little doubt that ours is now something of a digital world…

Even so, the human element has not been rendered entirely obsolete, despite forecasts that an army of robots will soon result in many people heading for the dole queue.

That’s a thought which came to mind while reading an article in The Times attributing a drop in the number of property raids carried out by HMRC to its growing use of information technology and, in particular, a database known as Connect.

The story described how the Revenue’s officers had been able to raid 30 per cent fewer properties in the 12 months to April than during the previous year because its methods of tracking tax evasion had become “more sophisticated”.

On the face of it, the interpretation of the available facts certainly fits the narrative of HMRC becoming the latest organisation to realise the benefits of digital assistance.

I believe, though, that the truth is somewhat more complex than it might at first appear.

What is HMRC Connect?

Connect was launched by HMRC eight years ago and designed to overcome the difficulties which confronted certain investigations because the Revenue’s files contained disparate tranches of data which, until then, had not been (for want of a better phrase) connected.

It has arguably been a success by building up a more complete picture of the behaviour of companies or taxpayers under scrutiny.

However, it is no cure-all.

Although Connect can help with the fundamental checks needed to establish the basis of an investigation, it cannot do all the work.

As the Times’ article underlines, raids are still required to seize evidence and, when it’s gathered in, that evidence has to be sifted to determine whether it points to any avoidance or evasion of tax.

Connect might some part in focusing investigations and, therefore, avoiding the need for a proportion of raids – or ‘knocks’, as they’re referred to in HMRC circles – but crediting it alone with a 30 per cent reduction in such visits in just 12 months is perhaps overstating its value.

Just as much of a consideration are the challenges to the scope of HMRC investigations.

Almost exactly a year ago, the Financial Times was reporting an increase in the number of judicial reviews with which the Revenue had to contend with.

For example, Newcastle United attempted – but ultimately failed – to secure a judicial review of the seizure of documents by HMRC officers in a raid on its St James’ Park ground in April last year

Against that context, it’s rather understandable that HMRC might want to make doubly sure of the information on which it proceeds.

Interestingly, the details in the Times’ article refer solely to potentially criminal matters and not civil investigations which generally take place outside of the full glare of publicity.

These are also the sort of enquiries in which Connect possibly has a more significant role to play than the seizure of paperwork and computer hard drives.

In that sense, raids are the high-profile tip of the HMRC investigations’ iceberg and don’t necessarily tell the whole story…

Putting last year’s decrease down to Connect also rings somewhat hollow when balanced against the 34 per cent increase in raids in the previous five years after the database was introduced.

It’s probably more accurate to say that whether the emphasis is on human or humanoid resources, there’s certainly no real evidence that HMRC is taking its foot off the pedal when it comes to tax avoidance or evasion.

ARE HMRC’S BEST FRIENDS REALLY ELECTRIC? Like this article? Learn more about our HMRC Tax Investigations here @EnterpriseTax, read more about tax avoidance related matters here or check out our tax evasion and investigation posts here.

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