Page 29 - PWM2023_October EBook

TECHNOLOGY REPORT

from the date that a tax return is submit- total or global figure was included in boxes on the tax return, not a tax return.
ted to open an enquiry – called a compli- breakdown of that figure. Additionally, income may have been put Not everyone who receives a one-to-
ance check – into that return. on the tax return as one type, say interest, but reported to HMRC many letter will necessarily have under-
But what should worry taxpayers, by the overseas tax authority under automatic exchange as some- declared tax – there could be other
reckons Thornley, is that during the thing else, possibly dividends. factors such as available reliefs, or
Autumn Statement last November Curran’s point is that HMRC may wrongly interpret the data it expenses which mean there is no tax to
(2022), the chancellor reiterated the has about individuals so it should always be checked; at the end of pay. However, Thornley states that
government’s desire to crack down on the day, it is the taxpayer’s responsibility to make sure their tax “individuals in this position should not
fraud and error, with “the promise of a affairs are correct, complete and up to date. just ignore these letters as generally
package of measures designed to collect The world of online has society in a stranglehold. While it’s
a further £1.7bn by tackling tax avoid- loved and vilified in equal measure, Curran says that with its pow- income must be reported and reliefs/
ance, evasion, and wider non-compli- ers and means, online “has certainly provided HMRC with a expenses claimed officially via a tax
ance over the next five years”. wealth of information about taxpayers which it can use in its com- return”. She continues: “It is important
pliance activities... you just can’t assume HMRC is ignorant of to read the letter carefully to see what
What does HMRC know? action is needed and to take appropriate
anything these days”.
Although most are aware that HMRC But apart from raw data, HMRC also gets information directly professional advice on how to respond as
can carry out enquiries into their tax from whistleblowers, including unhappy business partners, HMRC will normally want taxpayers to
affairs, the risk of being the subject of a spurned ex-spouses/partners, disgruntled employees and envious confirm that they consider their tax posi-
random enquiry is perceived as low. neighbours. tion is correct. If no action is taken, or
However, HMRC has access to an enor- However, as Thornley cautions, data is only part of HMRC’s HMRC does not accept the response
mous amount of information that allows compliance approach. In fact, without proper analysis it’s mean- given, then HMRC may move on to
it to make many more targeted enquiries ingless and HMRC cannot identify areas of risk. She points out open a formal enquiry.” Indeed, Curran
where what a taxpayer has declared that “since 2010 HMRC has had access to powerful data analysis says the same and advises taxpayers to
doesn’t fit with the information that software called Connect which helps to match information from “tell the truth and co-operate with
HMRC has. multiple sources to taxpayers and identify patterns or anomalies HMRC and seek appropriate advice if
In short, Thornley tells how HMRC which need to be investigated.” they think they need it. If HMRC
Mind the (tax) gap ability to request, information from of data sourcing and analysis, so are firms in hiding revenue. One decides to open a specific compliance
either automatically receives, or has the
It should be said that just as HMRC is upping its game in terms
check into a taxpayer’s affairs, you can
third parties including banks and build-
such example is termed electronic sales suppression (ESS), and
look at HMRC’s Tax compliance checks
ing societies, financial institutions, let-
ting agents and online cryptoasset Curran details that HMRC is taking steps to counter this threat to guidance on gov.uk and on YouTube
the public purse. A consultation on the subject, ‘Electronic sales
exchanges as well as other government suppression: a call for evidence’, ran from December 2018 to which explain what’s involved”.
bodies such as HM Land Registry, March 2019. In response, the government said that it is “using this Can a timely response lead to an inves-
Companies House and the DWP. It can evidence base to explore the issue further and develop more effec- tigation being closed quickly? Not nec-
also request data about sales or income tive policy options for tackling ESS, in conjunction with other essarily in Curran’s opinion as that “will
from popular online marketplaces such depend on what the investigation is
as Airbnb, eBay and Etsy. measures to tackle non-compliant activity”. about, how complex it is, and also how
And as she comments, “because of One-to-many ‘nudge’ letters quickly HMRC can deal with the corre-
information exchange agreements with spondence”. She reminds that some
other countries, HMRC also automati- So, using information obtained from automatic data exchanges areas of tax are very specialised, so “it
cally receives information from banks and with the help of Connect it means that instead of a specific, may be appropriate to seek advice from a
and building societies about overseas tailored enquiry into an individual, HMRC often now starts by tax adviser who specialises in that par-
accounts held by UK residents”. From issuing a standard letter to a number of individuals or businesses ticular area”. While CIOT and ATT have
her standpoint, this can help HMRC to which have been identified as potentially under-declaring tax. In online directories to help those looking
spot undeclared wealth held overseas. Thornley’s view, “these ‘one-to-many’ letters act as a cue for tax- for tax advice, Curran says that those on
But with regard to overseas data, payers to review their tax affairs and take appropriate action.” a very low income can seek help from
Curran remarks that its use by HMRC organisations such as the charity TaxAid.
should come with a “health warning”: As for recent examples of HMRC’s targeted activity, Curran emphasises that HMRC
that it is difficult for the body to inter- Thornley gives two. doesn’t have the right to demand any-
pret it correctly. As an example, she says: By using data from Companies House records, HMRC was able
“Discrepancies in the data received from to identify changes in the ‘person of significant control’ (PSC) for thing, but it does have broad formal
overseas tax authorities may exist due to a number of companies. PSCs are, broadly, individuals who own powers to obtain information from tax-
it often relating to a calendar year, at least 25% of the company’s share capital. Where Companies payers and third parties if it thinks it’ll
thereby crossing over two UK tax years, House records for 2020/21 showed someone had ceased to be a assist the investigation: “There are safe-
which makes it difficult to match it with PSC but there was no evidence of a share disposal on their tax guards in place, though. For example,
the figure reported on UK tax returns.” return, HMRC wrote to ask if they had disposed of shares and HMRC can ask for information but only
Beyond that Curran says that match- needed to report any capital gains tax. if it is ‘reasonably required’ for checking
ing problems may also exist due to how And using data from cryptoasset exchanges, HMRC was able to a tax position; a taxpayer can challenge
or where figures have been reported on identify around 8,000 individuals who were transacting in cryp- that if they don’t think the information is
UK tax returns. This may occur where a toassets but had not reported any cryptoasset transactions on their ‘reasonably required’.”

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