You may have seen the eyes staring at you from a billboard or a poster on the side of a bus shelter. You may have heard the radio adverts or subconsciously caught sight of an online message. You may even have thought ‘about time’ and been reassured by the news that HM Revenue & Customs (HMRC) is making a determined effort to tackle illegal tax evasion.
The purpose of the national publicity campaign, which began in November 2012, is to encourage people who are not paying the right amount of tax to change their behaviour and to pay any unpaid tax voluntarily. HMRC aims to deter tax evasion of around £100million as a result of the publicity drive by 2015 and as part of a wider strategy HMRC calls the ‘Promote, Prevent, Respond’ approach.
One of the tools HMRC uses to respond to tax evasion is to act on third party information provided by people who contact the Tax Evasion Hotline to report suspected tax evaders.
During 2012/13, 71,887 people got in touch with HMRC to provide information, either over the telephone, online or by post. Over the last four years alone, HMRC has received in excess of 300,000 evasion reports, as broken down in the table below.
|TAX YEAR||TELEPHONE CONTACT||ONLINE REPORT FORM||BY POST||TOTAL EVASION REPORTS|
Source: Freedom of Information reply from HMRC.
Note: 2012/13 is the first year HMRC began to keep a record of the method of hotline contact.
What prompts people to approach HMRC?
Generally, the figures suggest one of the primary factors could be the economic environment at the time. The peak year for calls during the period was 2010/11, when the UK was in a deep recession after the credit crunch and households were suffering from falling living standards. Perhaps understandably the pangs of envy become too much to bear if a disliked neighbour happens to embark on a large house extension or a business competitor suddenly starts driving a brand new luxury car.
Based on my experience from working in HMRC and the letters I saw, it is always wise to avoid an acrimonious divorce or separation. Jilted husbands, wives, boyfriends and girlfriends were frequent suppliers of ‘hard’ third party information, usually in the form of hidden bank account data or specific details of off record cash in hand work.
To a lesser degree, financial reward is a motivating factor. In some circumstances HMRC pays a cash reward for the information received. This usually depends on what is the direct end result of the information provided and the yield generated for HMRC. In the three years to 2011/12, HMRC paid out just over £1million in rewards to members of the public.
How do people give HMRC information?
Put simply, by:
- Telephone on 0800 788 887, Monday to Friday, between the hours of 8am and 6pm http://abytx.co/19paA4x.
- Online submission and the completion of a Tax Evasion Hotline report http://abytx.co/15MbPjm.
- Post to HM Revenue & Customs, Freepost NAT22785, Cardiff CF14 5GX.
What does HMRC do with the information it receives?
At the end of last year, HMRC announced in its publication called Closing in on tax evasion (page 11) http://abytx.co/TGOy6O that it would be adding almost half a million tax evasion hotline reports, made by the public, into the Connect system from April 2013. The hotline was first made available in November 2005, so HMRC is presumably uploading historical data as well as more recent reports.
Connect is the name of HMRC’s award winning analytics computer system which houses the data HMRC collects from members of the public, financial institutions, other government departments such as the Land Registry and even foreign governments through various tax treaties, to name just a few sources.
The innovative technology basically connects all the pieces of information together, helping HMRC build up a detailed profile on recognisable entities, whether that individual is an employee, a business owner or a company director. The system also enables HMRC to build links between individuals, their families and the circles within which they do business.
More recently HMRC has also demonstrated a willingness to trawl social media websites to seek lifestyle pointers, such as frequent foreign holidays or expensive hobbies. Indeed, HMRC announced a hidden wealth task force centred on the Midlands just a few weeks ago. HMRC expects to collect £3million from the task force by checking people’s lifestyles with their known assets.
During enquiry work, it is not uncommon for an HMRC Inspector to look on Google Street View to look at the exterior of the property of the person under investigation. In a meeting with HMRC earlier this year, a Tax Inspector turned their computer monitor around on their desk to show my client’s house. The Inspector promptly started asking questions about when an extension on the side of the house had been built, how much it had cost and evidence of how the work had been funded.
What does it all mean?
In a nutshell HMRC is far more organised in its approach to investigation work, with detailed research undertaken before and during the instigation of an enquiry. Without doubt HMRC enquiries are also far more intrusive than they have ever been before and can be made even more difficult by accusations made via the Tax Evasion Hotline.
Furthermore, HMRC does not appear to be exercising any form of quality control and is simply uploading all the evasion reports it receives, even if the information is relatively superficial and little more than gossip.
What’s the answer?
There is no legal requirement to keep personal financial related paperwork, but in this era of transparency and information exchange, privacy is a diminishing commodity.
Even if you feel you have nothing to worry about, it is wise to keep documents which may normally have been discarded. For example, the schedule of works setting out the cost of an extension, the solicitor’s Completion Statement to evidence a re-mortgage to raise funds for the work to be done, the luxury car purchase paperwork or the letter from the executor setting out an inheritance gifted from a relative, enabling the once in a lifetime trip; all just in case somebody has put two and two together and told HMRC five.
Retaining this information does not necessarily mean another box file of paperwork in the already cluttered loft or garage. Documents can easily be scanned or e mails retained on computer as backup, in the event HMRC do come calling.
Finally, it is also practical to have some form of fee protection insurance in place, to mitigate any professional fees incurred during an HMRC enquiry.
There are three ways to obtain this vital insurance:
- By speaking to your accountant and asking about their fee protection policy to find out whether you are covered.
- By being a member of a trade or professional organisation. The Federation of Small Businesses (FSB) http://www.fsb.org.uk/ and Professional Contractors Group (PCG) https://www.pcg.org.uk/ are just two examples of business organisations who provide cover for members.
- By taking out a Tax Defence policy with Abbey Tax Protection https://abbeytaxblog.co.uk/tax-investigation-insurance/
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.