Tax crackdowns have arrived thick and fast in the past three years. Officials have targeted everyone from doctors to Avon ladies to claw back £35bn lost in unpaid tax each year – and more inquiries are in the pipeline.
Accountants claim that HM Revenue & Customs focuses on “soft targets” through special task forces that investigate specific job sectors.
They say middle-class professionals become anxious when faced with a bill for underpaid tax – and so are more likely to settle claims without dispute. The targeting of professionals began in 2007, but has become more prominent in the past three years, with the Revenue collecting almost £1bn.
Here we explain how HMRC decides which groups to target – and who is on its radar.
How job sectors are picked
The taxman is not allowed to engage in “fishing expeditions”. Instead it must show evidence to justify wider inquiries.
First it collates as much information as possible from third parties, such as banks and local councils. This is fed into the Revenue’s powerful computer system, called Connect, which cost £45m to build three years ago and is said to hold more data than the British library.
A formula is applied to bring to the fore what would otherwise be undetectable information.
For example, the computer holds details of every property bought in the UK, as it has access to the Land Registry. This was instrumental in the Revenue’s crackdown on buy-to-let landlords who had not paid enough tax.
The computer also stores records from the Driver & Vehicle Licensing Agency, hospitals, insurers – and even the official list of gas engineers. All this data can be compared against an individual’s tax returns.
The computer joins the dots to give an indication of particular industries where there might be tax shortfalls.
Paul Noble, a tax director at Pinsent Masons, the law firm, said: “The computer is the tax version of Big Brother, because so much personal data is being watched.
“The computer system has only been up and running for three years, but during this time it has already targeted several professions and there are plenty of others it will also be watching over right now.”
When the Revenue has enough hard evidence to launch a campaign against a particular sector, it offers workers the chance to get their tax affairs in order.
Letters are sent out to taxpayers suspected to have underpaid. A deadline date to repay anything due is offered. If taxpayers pay straight away they can avoid a fine. Those who do nothing, or challenge HMRC, will be investigated further. If found guilty, non-payers can face prison.
To “scare” people into paying up, the Revenue heavily publicises prosecutions, according to Dawn Register of accountants BDO.
A recent example of this tactic was on show earlier this month, when an eBay trader was imprisoned for two years for failing to pay tax on more than 500,000 sold items.
“For every campaign, one or two people are jailed and HMRC makes a huge song and dance about it,” Mrs Register said.
“The people they jail are always extreme cases, such as the eBay trader, but publicising the sentences handed out is part of the Revenue’s agenda to unnerve people into paying early without challenging the taxman’s claims.”
Who’s on the hitlist today?
The taxman is currently focusing on two areas: people with multiple sources of income and landlords.
Landlords are under scrutiny because the Revenue estimates that £500m is lost every year. It said thousands of landlords paid little or no tax on rental income, while others did not declare capital gains on second properties.
Last month the Revenue said 40,000 landlords were suspected of bending the rules. Letters will be sent out over the next four months, which will give landlords an opportunity to clear their name.
The “second incomes” campaign targets everyone from consultants and part-time taxi drivers to car boot traders.
Andrew Watt, a partner at Watt Busfield Tax Investigations, said this campaign started only in April and would be one of the Revenue’s main focuses over the next couple of years.
“With all the data they have at their disposal the Revenue will catch all sorts of people,” he said. “There is no end date given on the campaign, which is unusual, but this perhaps indicates that there is a big pool of tax sharks to be caught.”
Who could be next on the taxman’s radar?
Expats could be next to feel the heat, experts say.
The Government could prevent expats who let out British properties from using the personal allowance (income on which no tax is paid). The proposals are under consultation. If they are given the go‑ahead, the Exchequer is expected to raise £400m a year.
The Revenue is also keeping a close eye on undeclared offshore bank accounts. It recently obtained powers that make it much easier for the Connect computer system to spot overseas assets.
“This is high on the agenda, so it is best to make a voluntary disclosure before the Revenue comes knocking,” Paul Noble of Pinsent Masons said.
Dawn Register of accountants BDO said solicitors and barristers could be targeted next. “The Revenue now has access to legal aid data, so if it spots a trend it could well take another look on a much bigger scale,” she said.
Telegraph.co.uk 16 September 2014