We delve into our accountants’ claims to provide HMRC insight

    HMRC’s number one objective is to maximise revenues due and to bear down on avoidance and evasion. According to the latest figures published by HMRC just a week ago today, compliance revenue of £17.4bn had already been delivered by the third quarter of 2016/17, well on the way to achieving and exceeding the full year target of £27bn.
    An analysis conducted by our claims team has identified a particular focus on VAT compliance, followed by Income Tax aspect enquiries. These results are understandable and brought into context when reviewed in conjunction with HMRC’s calculation of the tax gap. The most recent tax gap calculation was £36bn, of which £15.5bn was attributed to Income Tax, National Insurance and Capital Gains Tax, followed by £12.7bn lost to VAT. The tax gap represents the difference between the amount of tax that should be collected by HMRC against what is actually collected.

    Claims analysis

    Abbey Tax’s broad and diverse client base allows us to draw insight and identify emerging patterns  of HMRC compliance activity. In particular, aggregate data from our fee protection insurance claims highlights the experience of our clients.
    This month we review the claims we received in the second half of 2016, where once again we saw a particular focus on VAT registered business.
    Abbey Tax: HMRC Claims July – December 2016

    Our highest number of claims, by some margin, were for help with VAT compliance checks. VAT inspections have always provided a rich source of claims, with VAT officers invariably keen to visit businesses which are operating the Flat Rate Scheme or to check the veracity of VAT repayment claims. Other risk areas pursued by HMRC exist where a business consistently trades just below the VAT registration limit year after year intimating suppressed takings or where information is held which suggests a business is trading above the VAT threshold, but is not registered for VAT.

    Year on year comparison

    Compared with the second half of 2015, whilst VAT claims have remained steady, Income Tax aspect enquiries have risen sharply. This was offset by a considerable reduction in Personal Aspect enquiries. 

    Abbey Tax: HMRC Claims H2 2016 vs. 2015 

    If we look back at the tax gap figures again, but by taxpayer/business group rather than by tax type, HMRC believes £18.3bn is down to small and medium sized businesses, £9.5bn to large businesses, £4.8bn to criminals and £3.4bn to individuals. 

    These figures go some way towards explaining HMRC’s approach but, undoubtedly, the Land Registry data is also playing a part. During the last tax year, HMRC collected £140m from unpaid capital gains tax, with £85m from small businesses and regular taxpayers and £55m from the UK’s wealthiest taxpayers.

    Overall, Abbey Tax handled 11% more claims in the second half of the year than in the first half. 


    Data, data and more data

    Many readers will already be aware of HMRC’s Connect software system. Connect brings together the jigsaw of third party information HMRC receives and allows specialist tax analysts to put the pieces together, to identify suitable investigation targets.  A national newspaper has called it HMRC’s Snooper Computer because of the breadth and depth of data it holds.

    Since it was first adopted by HMRC in 2010, Connect has helped generate more than £3bn of additional income and is now responsible for delivering 95% of the cases pursued by the various compliance teams. 

    New data sets from the Land Registry and Merchant Acquirers programme have doubled the size of Connect in recent years. It currently holds a huge 22 billion lines of data. This information is now available to interrogate, alongside bank and building society account data and even Tax Evasion Hotline reports, filed by disgruntled partners, business competitors and jilted lovers. HMRC receives in excess of 70,000 such reports each year.

    The Merchant Acquirers information, which involves PDQ machine data being provided to HMRC, is providing a lucrative resource for HMRC. In one month Connect analysed more than 800m Merchant Acquirer transactions representing £40bn in credit and debit card spending. It identified a case involving a large restaurant where the expected cash, credit and debit card transactions suggested evasion. An enquiry was launched and the anticipated settlement is now in excess of £4m.

    To find out more about how we can help you protect your clients please email sales@abbeytax.co.uk