HMRC – sources of data

24th February, 2020

HMRC – sources of data

Bulk data

My last blog explored what HMRC knows and why receipt of an enquiry should not be regarded as a fishing exercise but rather evidence that a risk has been identified by HMRC.

That started me thinking about the sources of some of the data they can, and do, use.  In particular, a power that was introduced by Sch. 23 Finance Act 2011 allowed HMRC to obtain bulk data from a “relevant data holder”.  Whilst HMRC had always been able to obtain bulk data, it had been difficult. It usually involved convincing a Special Commissioner (similar to the First Tier Tribunal) to issue the request.

A click of a button

The 2011 legislation meant that this step was no longer necessary, therefore making it easier to get access to rich intelligence. The relevant data for the purposes of the act are broadly (simplified slightly for the purposes of the article):

• Salaries, fees, commission
• Interest
• Income and assets belonging to others
• Merchant acquirers
• Payments and subsidies paid out of public funds
• Licences, approvals
• Rent and other payments arising from land
• Dealing in securities
• Dealing in property
• Lloyds
• Investment plans
• Petroleum activities
• Environmental activities
• Settlements
• Charities

You can see that that is a very broad brush – potentially millions of lines of data each year, ready to be loaded into Connect and matched to your tax return at the click of a button.  It’s another example of how the world is becoming more tax transparent, more data driven, and certainly smarter when it comes to analysing that data. 

Some of the above will be a regular request that HMRC make each year. For example, interest payments made by banks is an annual exercise and whilst HMRC cannot blanket request balances, it is not a hard exercise to take the average interest rate and work out the capital in the account.  Does that capital correlate with the earnings you have been declaring to HMRC each year?  Perhaps not, and perhaps there is a reason for this – such as an inheritance received or a lottery win.

Payments and subsidies from local councils have been a popular target also in recent years, particularly housing benefit payments.  Again, very easy for HMRC to match against tax returns to determine whether an under declaration has happened.

Looking for real risk

Some requests will be more ad hoc, usually as a result of HMRC identifying an area of concern and building a project around it. Those that received letters regarding their IR35 status with various Pharma manufacturers may start to get an idea how their name ended up listed to receive an HMRC ‘nudge letter’. In this instance it did not actually mean you were operating in an incorrect way. Though it was certainly not a fishing exercise, those that reply in a robust, evidence-based way may find that this ends the matter. As a result, HMRC will prioritise those which pose higher risk.

What is certain in all the above though is that HMRC have identified a real risk that you and your adviser need to address to satisfy them that your return is correct.

A better understanding

I have detailed the above, not to scare, but rather because as part of any enquiry I believe it is essential that you and your adviser understand where all HMRC’s data arrives from to get a good understanding of the inspectors concerns. This way you can pre-empt an inspector’s train of thought and as a consequence, assess the most appropriate way to close the enquiry with no further adjustment.

Forewarned is forearmed.

We are here to help anyone who receives an HMRC enquiry or request. We are experienced in dealing with such matters raised above. Often, we find that working with the inspector early to understand their concerns are beneficial in early resolution and bringing matters to a swift conclusion.  If you wish to discuss any of the above please get in contact with me.