HM Revenue and Customs is cracking down on tax avoidance, with several high -profile cases coming to court recently. Here are some of the ways the taxman uses to find out if you're not paying what you owe.
Heading the list is events that are flagged up by the government’s Connect computer programme. This searches through more data than is contained in the British Library in a hunt for unpaid taxes, joining the dots between what may appear to be unrelated information.
In one case a London homeowner was found to have a property worth several million pounds, without any tax history. The owner had earned more than £100,000 a year running an escort agency from the address for more than six years.
HMRC works with similar organisations overseas, providing its second means of foiling tax crooks who hide out in tax-haven islands. The ‘common reporting standard’ system is used to track these perpetrators down.
HMRC reckons it loses billions of pounds each year through undeclared work activities. Traditionally the tax office has targeted known likely professions, such as plumbers, doctors and solicitors, but in more recent times it has broadened its scope to include the likes of buy-to-let landlords.
Some tax evaders only respond to fear of a lengthy prison sentence or a hefty fine. HMRC was given a target to triple to 100 the number of prosecutions of wealthy individuals and corporations each year to 2020. New ‘strict liability’ laws provide the tax office with the power to prosecute evaders even where there is no evidence they were aware that they had transgressed.
The fifth strategy sees HMRC draw on informants. To date more than 113,000 reports of tax evaders has been received, including PAYE and national insurance evasion, undisclosed offshore investments and tax credit fraud.
In some cases the tax office benefits in its work from leaks given to the press, in one notable case to the embarrassment of MPs.
Small businesses are a big problem for HMRC, which estimates irregular finances accounts for more than half of the gap between what the Treasury calculates should be paid in tax, and what it actually sees. New digital matriculation systems are used by tax investigators to track down the tax evaders.
Increasingly social media is used to find fraudsters. Posts of extravagant weddings, for instance, have led investigators to the door of wedding planners who did not declare their earnings.
‘Suspicious activity reports’, including money laundering, account for hundreds of thousands of tax evasion cases. According to Jonathan Fisher, a tax barrister, this type of fraud accounts for one in four HMRC cases.
Finally, forced disclosures may prove a beneficial way to find tax evaders. HMRC is considering a Parliamentary idea to make it easier to establish the amount of tax income high net worth individuals owe through tapping their conversations and transactions. The jury is still out on whether this approach will be adopted.
