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Using Big Data To Catch Tax Avoiders


Using_Big_Data_To_Catch_Tax_Avoiders.jpgWith tax avoidance at the forefront of Government policy and a major talking point on the international stage at events such as the G20 summit it is not surprising to learn that Her Majesty’s Revenue & Customs (HMRC) are using every tool at their disposal to recoup lost revenue.

HMRC Digital Enforcement Strategy

Since 2008 HMRC have invested £80 million in the acquisition of and development of a sophisticated digital data gathering and analysis system called “Connect”. 

How it Works

The Connect system is a big data matching tool with the capability of cross checking one billion pieces of data from HMRC records, and third party data to identify links between people, organisations, assets and income within seconds.  It then matches its findings against the information taxpayers have provided through their returns where discrepancies are flagged and could prompt a tax investigation.

Connect gathers digital information from 30 different sources including traditional ones i.e. public sources such as Companies House and the Land Registry and other Government Agencies, from employers, companies, banks as well as information from social media such as Twitter and Facebook.

Related: OECD Plans For The Automatic Tax Information Exchange Worldwide

Concerns About The Use Of Connect

The use of easily accessible data from sources such as social media accounts is not a new phenomenon; the Telegraph recently reported how the FCA have launched an investigation into how insurance companies are using customers’ internet activity data to determine risk and increase premiums.

There is no question that Connect is an irreplaceable resource; however it is not without its critics. Some argue that erroneous or incomplete data could trigger spurious tax investigations or potential prosecution, which is a valid concern considering some of the data is taken from social media accounts.  There are concerns over the security of data collected, given that Connect has access to an insurmountable range of sources and stores this data for future reference, and the fact that employing a system so Orwellian in its nature is likely to trigger public anxiety over the amount of personal information residing in the hands of the state.

Related: The International Battle Towards Banking Transparency

Closing The Tax Gap

Brought online in 2010, Connect and the team of data analysts have been instrumental in 2011/12, generating 62% of all enquiry cases. This increased to 83% by 2013/14, leading to £3 billion in additional revenue to date, representing a return factor of 37.5 on the £80 million investment.  In addition Connect has reported to have prevented the loss of £1.4 billion revenue as a result of criminal investigations into tax and duties since its introduction.  Because of its success HMRC are keen to expand their Digital Enforcement Strategy. 

Related: The Serious Consequences Of Not Filing Annual Returns On Time

Connect’s Reach Continues to Expand

Connect’s powers will continue to expand further as it acquires data from further sources; in September 2016 HMRC will have access to files held in banks and other financial firms based in British overseas territories, and from 2017 Connect will have a global reach with access to data from a further 60 countries as part of the Common Reporting Standard to assist in the combat of tax avoiders/evaders.

The aggressive attitude of International Governance bodies, such as the OECD, toward combatting tax avoiders and evaders is reflected in the Governmental policies of many member countries, a growing number of other countries are also supporting the movement. The use of systems such as Connect is only set to grow in popularity, and become more effective given the growing number of taxation information sharing agreements worldwide and as a result it is time for everyone to get their tax affairs in order.

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