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HMRC is putting more taxpayers at risk of inquiry as it ramps up its data collection activities

Ordinary taxpayers are becoming increasingly at risk of an inquiry as HMRC ramps up the amount of data it collects and looks for new sources of information for use in its investigations.
 
Recently, HMRC has been collecting data on taxpayers by submitting information requests to professional services firms, such as lawyers and financial advisers, asking for confidential information on their clients. There was 19% rise in the number of these requests last year to 1,507, up from 1,276 in 2015/16.
 
Submitting information requests is HMRC’s latest tactic to increase its data pool on taxpayers – these requests are often effective as firms can face criminal liability for failing to comply with them.
 
The hunt for new information on taxpayers comes as HMRC looks to hit its new, tougher prosecution targets. In 2015, HMRC was given an extra £800m in funding to help it meet a target of tripling the number of investigations it conducts by 2020.
 
As accountants will already know, HMRC has extensive data resources at its disposal. Tax inspectors can carry out preliminary work for investigations in seconds using its £80m Connect database, which is a state-of-the-art analytical and sorting computer system designed by BAE Systems.
 
The Connect computer is fed from 28 data sources; including Companies House, the Land Registry and even banks, and holds information on taxpayers’ bank accounts, salaries, properties and cars, amongst other details. It compares that data with clients’ self-assessment returns and flags up anything that looks suspicious for investigation.
 
Tax investigations can be costly, disruptive and stressful for clients and may even result in long-term reputational damage for some businesses. Consequently, clients need to be aware that even simple errors on a tax return can be a red flag to HMRC and could lead to an investigation.