‘I can’t make bricks without clay.’, so says Sherlock Holmes
Likewise solid conclusions cannot be drawn without data.
Data & HMRC
Data analytic technology is being used more and more by businesses to improve performance. HMRC has not been left behind in this technology drive.
HMRC is increasingly using its sophisticated information system CONNECT to identify income or gains previously undeclared.
CONNECT is essentially a spiders web. It links the various transactions, providing a pattern of financial behaviour. If not corroborated by declared earnings it can (and does) lead to a HMRC challenge.
CONNECT is capable of identifying bank accounts, insurance policies, property and lots more.
There is no hiding place from this electronic beastie.
The data trail
Modern life leaves an electronic trail. Paying for things using PayPal, credit cards, Apple Pay etc leaves a trail as does the use of Apps like Just Eat, Deliveroo, Uber Eats etc.
HMRC also has access to government records such as the DVLA, the Land Registry and electricity metering details.
The Common Reporting Standard (CRS) has merely widened the source data for CONNECT to work on.
Incorrect data or interpretation?
The problem with all of this information is that HMRC can arrive at an incorrect conclusion.
The burden is then on the taxpayer to convince HMRC they are incorrect or quite simply wrong.
To use the Holmes analogy further the “… bricks are made of sand, not clay.”
All Hail CONNECT?
As HMRC digitises everything its grasp of reality can become more shaky. “Computer says NO” seems to becoming a growing trend within HMRC.
In short, if it’s in the computer it’s right and it can be a real task to demonstrate to HMRC otherwise. This is despite the fact that what is in the computer (CONNECT) has not been sourced by HMRC nor has HMRC had any control over the quality (or possible lack of) of the data in the first place.
To come back to the erstwhile consulting detective; the clay is the evidence and real substance of transactions, not the ethereal gigabytes of data that at best is someone else’s interpretation and at worst is just wrong.
It is an old fashioned concept but documentation, evidence and good housekeeping still have a place in the 21st century especially when facing a HMRC challenge emanating from CONNECT that is potentially built on sand.
Any HMRC challenge should be taken seriously and anyone facing such a challenge would be best advised to seek specialist advice.
More information on UK Tax Evasion here.