12 Ways HMRC can Catch You Out
HMRC area canny lot. They have a nose for sniffing out a tax cheat. So how do they do it? Here we present 12 ways in which The Revenue might find out that you have been cheating them out of tax.
Firstly to the matter of whistleblowing. Did you know that HMRC paid out £350,000 to individuals who reported others for cheating them out of tax last year? Be careful who you share your private financial dealings with, they could be the ones to whistle blow on you! It might be an ex-wife, a partner or just some jealous individual you know. Whatever, keep your private tax affairs to yourself. If you need help and do get caught out then call us! Sir Amyas Morse from the National Audit Office said: “There will be occasions where it is appropriate for HMRC to pay a reward to individuals in return for them providing us with information”.
Our advice to you? Watch out!
Banks and Professional Advisors
This is a slightly different matter. You might feel some comfort in sharing your personal financial information with your bank, your financial advisor or accountant, but you may wish to think twice! Under current legislation, professional advisors are obliged to inform HMRC if they have a suspicion that one of their clients may be involved in money laundering or the financing of terrorism. Did you know that nine out of ten Suspicious Activity Reports (SARS) are filed by banks and related financial institutions? It has have been estimated that up to 25% of all HMRC investigations have been triggered by a SAR! (Tax Barrister, Jonathan Fisher)
Our advice? Can you trust your advisors?
Arguably the greatest invention of the 21st century, social media has taken over everybody’s lives. With more than 2.3Bn people connected on Facebook, which is itself is valued at over $500Bn you can see how easy information about you can flow. Your activity could reveal you as a tax cheat! Social Media can provide HMRC with a huge amount of data. Let’s say you are regularly pleading poverty to The Revenue but start posting up photos of you on expensive holidays or driving flash cars. These activities which are out of kilter with your usual behaviour can spark interest from HMRC! This form of Open Source Research is available to anyone who has a mind to track you. HMRC is constrained by law as to how far it can go but private agencies are not.
Our advice? Be careful what you share on Social Media – There are settings to share posts from ‘public’ to ‘close friends only’ – use them.
There are a number of really useful features which Google provides that can be the downfall for the tax evader.
Google Earth – Providing satellite images taken from space. Virtually the whole of the world is now mapped by Google. If you are pleading poverty but there is clear evidence of building work on your house then HMRC can get suspicious. If they are already looking at you then take it as a given!
Google Maps – Similarly, Google provides arguably the best mapping systems and telematics in the world. This includes something called ‘street view’. If you are claiming one thing but the front of your house suggests another (where did that shiny new Audi R8 come from? ) then you could be letting yourself in for a surprise.
Google My Business (GMB) – A must for any business trying to succeed locally. It requires a physical location. When that location is published Google will pull a photograph of the front of the premise from its data. Once again if that information is out of kilter with your normal activities then you could be in for a surprise visit!
Our advice – unless you want a visit, ensure that how you are publicly viewed is consistent with your affairs. Your unusual activity could reveal you as a tax cheat!
Roughly translated this is having an activity that creates income which HMRC does not know about. They are well aware that there is a large hole in the public accounts which can be accounted for as ‘undeclared economic activity’ or the ‘black economy’. Some people whose income is a complete mystery to HMRC are known as ‘ghosts’.
The revenue knows that certain occupations such as builders and plumbers are open to trading in large amounts of undeclared cash. Recently they have been having a field day with undeclared rental income. This buy-to-let income, Airbnb income and that from second occupations have come under special scrutiny. Councils are now making it a condition that landlords licence their properties. This registration once again provides a digital footprint for HMRC to search via the public register of renters.
When you register a vehicle with DVLA it becomes part of your digital footprint. An asset which can be easily traced back to you through ownership. Anyone inclined to search your vehicle can pay £3.50 and get the full lowdown, right down to whether it is taxed or not. DVLA holds all of this information so once again if you are driving a vehicle which is clearly beyond your means it may come under scrutiny.
HMRC used to offer all kinds of incentives for people who owned up to tax evasion. This included reduced penalties or even wiping the slate all together if fully disclosed to them. Those days are largely behind us as they come down harder and harder in people cheating them of tax. In fact, the opposite is true with them threatening bigger and bigger penalties for those who don’t come forward. The revenue is also using a name and shame system whereby it publishes details of people who have evaded more than £25,000 in tax. It actually publishes names, addresses and other contact details of these people every three months on its website! Tax penalties can now include 200% of the original tax due and 10% of any asset may seem harsh but voluntary disclosure is preferable than going to prison!
In the age of Big Data, there are inevitable big leaks. Think Wikileaks and the two major offshore leaks – The Panama Papers and the Lagarde List. All of these constitute sources of valuable information. The two latter leaks involved offshore centres, one of which The Lagarde List was stolen by an ex-employee! The Panama papers came out of a team of lawyers in Panama and included the details of numerous offshore companies which were established there.
There has been an explosion in the number of small businesses in recent years. According to Small Business UK, 40% of those with collapse within the first five years. This gives the owners a significant incentive to cook the books if they are in trouble. Small business tax evasion could include not declaring income, taking payment in cash, or simply inaccurate or sloppy reporting. Some may apply personal expenses to the company, overdraw the director’s loan account unlawfully or eat their own food, as well as taking advantages of other perks! HMRC can compare businesses with other businesses in the same field to ascertain where wrongdoing is happening. It could also send agents in to visit the business posing as a customer to experience any illegal behaviour first hand.
There has been a global crackdown on offshore accounts being hidden in exotic countries. The Common Reporting Standard is for the automatic exchange of information (AOIC) regarding bank accounts and assets on a global level. Originally, back in 2014 47 countries agreed to share information, from Argentina and China to South Africa. The agreement is known globally as s GATCA. Read more about offshore & worldwide disclosure.
The US is ahead of the game in closing down offshore activity. This crackdown has also involved Switzerland where the bank Credit Suisse was involved in a number of investigations involving the UK, France and The Netherlands.
Whereby wealthy individuals are forced to disclose the sources of their income. With so much information now available about assets and income from abroad HMRC has all the tools in its arsenal to force these people to disclose them or risk severe fines. As part of a huge anti-money laundering initiative, HMRC also has information on UK trusts. This will give the authorities even more information about the tax liabilities of people who use trusts to hide assets.
In an effort to pull all of this information together HMRC has developed a computer system called Connect. It sifts through a huge amount of Big Data to scoring it for evidence of tax evasion. The system is intuitive, able to power through millions of bytes of seemingly unconnected data to paint a big picture. As well as the Social aspects discussed further up HMRC has also been flexing its muscles with Amazon, Airbnb, Apple as well as payment gateways like Sage and PayPal in order to join up the dots. With this system, first developed in 2010 HMRC has the ability to profile anyone it so wishes. Launching the appropriate action to reveal you as a tax cheat.
It is fair to say that the risk of being ‘found out’ as a tax cheat is higher than ever! Any of the above activities could brand you a tax cheat! Our advice? Don’t stick your head in the sand!
If this article has left you somewhat uncomfortable. If you are in the remotest way worried about something you may have done in the past that may be discovered by HMRC then give us a call on 0800 471 4546 We are tax experts and can represent you in the trickiest of spots. Speak to us before you speak to them!