Tax investigations – Will more of your clients be investigated?

HMRC’s software leads to a rise in tax investigations

Tax investigations of old used to take weeks or months to conduct due to the inordinate amount of time that it took the tax inspector to obtain information.  This has now radically changed with HMRC’s award winning software.

Connect, as it is called, does just that by obtaining information from over 30 databases, scouring both personal and commercial information.   The information is collated, and links to taxpayers where there may be disparity, and identified. It has been stated that 80% of all tax investigations now follow potential leads generated by Connect.

Leads can come from a variety of sources.  Information held by the Land Registry, for instance, can be searched faster than ever. It knows the price you or your client paid for property and who provides the mortgage.  By cross referencing this price with stamp duty records it knows whether capital gains tax has been paid?  If owing, this could trigger a tax investigation.  Do your clients have several properties and are they declaring all rental income?  Connect will find out.

Not forgetting information about bank accounts and income.  It will look for any income disparity against tax returns and PAYE data submitted by employers.  HMRC receives reports regarding the interest paid to an individual and looks for an undeclared taxable savings income.  Have you or your client exceeded the annual ISA allowance?  This will not be missed either.

What kind of lifestyle does your client have?

Connect can search for extreme high activity created by one person on online marketplaces.  A hobby may be time consuming or is it a business that takes the time?  Is someone spending beyond their means?  Access to DVLA will give the type of car that is driven and how many cars are owned?  Does the income support this expenditure?  How many flights are taken during the year, have they got the income to match?

You or your client may have nothing to hide, but that doesn’t mean that a tax investigation won’t be instigated.

So what can you do about it?

Accountancy practices offering Vantage Fee Protect Tax Fee Protection insurance to their clients have the peace of mind knowing that when HMRC decide to investigate, they are prepared.

If you would like to know more about our insurance schemes please contact us.