In weekly tax brief we have referred previously to HMRC’s own tax gap statistics and noted that whilst – over a six year period - the department had achieved notable success in clamping down on tax avoidance, the outcome of its efforts in tackling tax evasion has been less successful. Simply put, as a constituent of the total tax gap (£36bn), the monetary amount being lost through evasion and the hidden economy (£11.4bn) is still considerable.
An OECD report entitled ‘Technology Tools to Tackle Tax Evasion and Tax Fraud’ was published on 31 March. This looks at the way in which 21 jurisdictions from around the world – including the UK – are using ‘cost effective technology solutions’ to ‘prevent, identify and tackle’ those perceived to be cheating the system. Examples contained in the report reveal that many countries are pleased with the counter-evasion successes which technological improvements are securing and seem keen to share best practice so that lessons can be learned from other tax authorities.
Here in the UK, HMRC use a sophisticated data analysis supercomputer system called Connect. Numerous diverse pieces of information are fed into Connect, ranging from bank interest and property transaction details to the much anticipated ‘offshore’ financial information being passed between jurisdictions in accordance with the ‘Common Reporting Standard’. Connect is thus a powerful tool which enables HMRC to consider the relative ‘risk’ of a taxpayer before deciding to launch an investigation.
Earlier this year – by means of a Freedom of Information (FOI) request – we sought to obtain an overview of the various sorts of data which HMRC were collecting. We asked the department to list ‘all the sources of information that HMRC draws on for use in its Connect system’. We had thought that HMRC would have been only too keen to respond, believing that with the details widely published, there would be no obvious hiding place for those committing tax evasion who might mistakenly be thinking ‘there’s no way HMRC will ever find out whatever financial misdeeds I am committing’. But no, somewhat surprisingly, HMRC rejected our FOI request by stating that what we were seeking was exempted from disclosure because:
‘Criminals are known to research and value any information on law enforcement operations, intentions, techniques and capabilities. As a publicly funded organisation, HMRC has finite resources and, given these limitations, increasing or incremental disclosure of data such as you have requested, including excessive internal operational detail, which could harm our ability to carry out our functions needs to be very carefully considered. Given the risk to the revenue, and potentially employees, if criminals were to be apprised of our activities such that they could undermine them, or plan further crimes, I conclude, on balance, that it is not in the public interest to set aside the exemption on this occasion.’
HMRC clearly have their reasons for being so coy about what they consider to be sensitive information held by Connect and the protection of their own staff is of course wholly understandable. However, we are struggling with the concept that publishing generically the extent of the sources of data being assimilated by the department could somehow play into the hands of criminals. Surely HMRC would agree that banging the drum about the large amount of new information now falling into the taxman’s hands must be a disincentive to those seeking to evade tax? If so - and presumably making it clear that there may be tens if not hundreds of different sources - would it not be appropriate for the department to publish a list of the ‘top 10’ broad areas of information being fed into Connect?
For more information please get in touch with Mike Down, or your usual RSM contact.