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Tax Tip

How does HMRC select tax returns for enquiry?

 We asked our resident tax experts how and why HMRC tax investigations occur.

 
Stuart Coleman, Manager of the Tax Department of ABDS comments:
“When the Inland Revenue and Customs and Excise merged in 2005, the newly created HM Revenue & Customs (HMRC) was left with a series of fraud detection systems containing huge amounts of raw data. The systems were not integrated, information was unmatched and it took hours, sometimes days, for HMRC investigators to bring all the details together and profile potential enquiry cases.  Since then, however, the department has made significant progress in organising and analysing the enormous volume of data it receives and acquires.”
 
Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“The selection of enquiry cases used to be conducted at a local level by comparing similar trades and professions within the geographical area and analysing the business results achieved.  Almost all enquiries now originate from the Risk and Intelligence Service (RIS) within HMRC. They consider risk on a national level rather than a local one and build information packages to help HMRC investigators pursue enquiries. ”
 
Stuart
“HMRC have issued a series of Campaigns and Task Forces, most recently there has been a clear steer towards potential property income omissions. The Property Sales Campaign, which closed in September 2013, gave people an opportunity to voluntarily disclose potential capital gains tax liabilities following the disposal of a residential property. It has been almost immediately followed by the Let Property Campaign, which is encouraging people with undeclared rental income to come forward.
 
New task forces this year have focussed on sectors including second hand motor dealers, road transport and construction. The recently launched ‘hidden wealth’ Task Forces across the Midlands, South and South East have the potential to be controversial as they target people suspected of living beyond their means, based on their declared assets to HMRC.”
 
TK
“HMRC’s award winning data system, called Connect, helps RIS in the selection of enquiry cases. Data from over 28 different sources is fed into Connect, including property transactions, tax return information, loans, bank account details, employment data and even referrals from the Tax Evasion Hotline. Then 150 Connect data specialists apply profiling and modelling techniques to look for patterns and behaviours. Once this work has been completed, the analysts refer cases for investigation. 
 
3,200 tax investigators then use a visualisation tool, similar to a spider’s web, to navigate around all the data.  When a risk has been identified, the next step is to decide on the method of approach and the level of compliance check. This can involve a ‘light touch’ advisory intervention, through to a full blown enquiry.”
 
New figures out show that HMRC has raised a record £23.9bn in additional tax for the year to the end of March as a result of a crackdown on tax avoidance. 
 
If you need any help and advice with your Tax compliance and planning, or you wish to know more about the ABDS tax Investigation Service, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help in all your financial planning and business advice.
 
ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900 E-mail: abds@netaccountants.net
 
Brilliant with numbers  
Great with people  
Clear and precise with advice
Timely and cost effective
In touch with issues that face our clients
Mindful of our client’s long term strategic goals
 
Helping Your Business is Our Business

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