HMRC Increase Tax Investigations

There has been a rise in legal cases between HMRC and taxpayers, due to HMRC collecting further data from banks and foreign tax authorities in order to send cases to tribunals. This has led to a rise of 43% over 2 years in First Tier Tax (FTT) tribunal cases.

There were 7,377 FTT cases in 2017/18, up from 6,559 in 2016/17 and 5,161 in 2015/16.

With the help of its bespoke “Connect” Software, as well as access to far more taxpayer information than before, HMRC has increased its analytical efforts by recognising typical behaviour and possible taxpayer infringement of the tax rules. This has led to an increase in investigations into the tax affairs of businesses and individuals, which in some cases have been seen as unwarranted and unduly aggressive when all tax laws have been adhered to and tax paid.

Upon launch in 2010, Connect was restricted to limited functionality. However, over time, Connect has grown to the point where it can now access a large amount of data such as, financial information from British Overseas Territories, 60 OECD countries, and various other government bodies and financial institutions – giving HMRC the data needed to challenge far more taxpayers and with fewer staff.

With an estimated £1bn lost in tax evasion every year, largely resulting from undeclared income or gains arising offshore, HMRC faces increasing pressure to reduce and resolve the issue. It has begun a far more focused approach in order to bring the highest tax revenues possible.

It is certainly clear from the evidence that HMRC is targeting more and more tax payers each year and in some cases very aggressively and using Accelerated Payment Demands (APDs). These APDs can require taxpayers to pay tax that HMRC think they owe. HMRC has come under increasing pressure to maximise tax revenues and accelerate the collection of tax.

HMRC can now find irregularities much faster.  Previously, the process would require significant human review, however the use of computer systems like Connect allows HMRC to automate laborious checking procedures and reconciliations. HMRC can then raise enquiries quickly and with more confidence that there is something to investigate which has a higher chance of recovering unpaid tax.  

Under the Require to Correct (RTC) rules, which we reported on back in March 2018, for UK taxpayers to avoid a minimum penalty of double the tax owed, HMRC is obligated to be notified about offshore tax liabilities in relation to income, capital gains, or inheritance tax. This is another angle for them to pressure taxpayers with the threat of large penalties if tax is not declared or paid. There have been several cases whereby HMRC have been deemed to be too aggressive in the pursuit of tax deemed to be owed.

Investigations are certainly increasing and can be extremely time consuming for tax payers and the receipt of letters requesting unpaid tax can certainly be intimidating. Shelley Capital Management LLP has had successful experience in dealing with HMRC tax investigations and ensuring taxpayers only pay the tax they owe. The importance of having a specialist deal with HMRC on their behalf removes the need for them to navigate the minefield of tax laws and regulations and gives them the peace of mind and time to focus on their own businesses.