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  • HMRC, Data Mining & Tax Avoidance

    5 March 2020

    A recent Freedom of Information Act ( F of I ) requests submitted by one of the larger legal practices has caught the attention of both the heavy weight and red top newspapers and has confirmed that HMRC has a “secret” group investigating the affairs of the super wealthy. This has been portrayed as a great revelation and pointing to something sinister.

    Unfortunately, it is not a great revelation and the jury is out on whether it points towards something sinister.

    Social Media, Tax Fraud & HMRC

    HMRC has been data mining for many years, to assist with taxpayer “compliance” and also to enable effective policy to be shaped. Since 2010 it has had its own Connect a social network analysis software data mining computer system developed by BAE Systems specifically for HMRC. Over the years its functionality has been improved and it is known that it pulls in data from public sources such as companies house, DVLA and the land registry, information obtained by HMRC from information request to commercial organisations ( such as recent requests to Crypto exchanges ) and social media. Unlike some other European countries HMRC are understood not to be using drones but will use Google earth. Interestingly it is understood that HMRC will also look at children’s social media accounts as evidently, they are more willing to boast about the expensive foreign holiday or their parents’ new boat!

    HMRC argue that law abiding taxpayers paying the correct amount of tax have nothing to fear, others may fear the amount of information held by the government and the security of the information held by HMRC and how in general information may be used in the future.

    Freedom of information is a two way process and HMRC have published their internal instructions for some years (although with some redaction ). In so far as obtaining information from government this is a formal process regulated by statute. From a tax practitioner perspective, it can be a useful tool to say uncover unpublished guidance or as we attempted to find from a recent request HMRC’s policy on pushing taxpayer to tribunal only to concede the point shortly before the case is heard.

    Should it be necessary to use a formal Fof I request to find details of HMRC’s investigations into the affairs of the super-rich or should we be surprised that they are doing so? I would suggest no in both instances. It is proper for HMRC to do so, not only to ensure that they pay the correct amount of tax ( whatever that may mean ) but to enable effective policy decisions to be taken and HMRC should be transparent in this respect.

    And here is the rub rather than becoming more open there is a perception that HMRC are becoming more secretive and most definitely more confrontational, perhaps the two go hand in hand!