Connect – the HMRC supercomputer keeping tabs on taxpayers

by | Feb 9, 2021 | Opinion, Tax

There is a paradigm shift underway with accounting and tax. Compelling products on the cloud, which we love, are taking the business world by storm. It means low price points, the ability to work from anywhere and getting updates straight away. But there is the further jet stream with all of this, namely HMRC. They too have been pushing the digital agenda with things like MTD. But HMRC’s use of technology hasn’t come from nowhere.

For several years, they have had a very powerful, intriguing tool at their disposal. Namely, a supercomputer called Connect.

What is Connect?

Simply put, Connect is a supercomputer, with the ability to cross-check records from multiple sources. This means pulling together all sorts of data and overlaying it with your taxes to spot anomalies. Sold a home and not declared it? Bought a supercar but made a third loss in a row? Booming eBay trade not made it on the tax return? These are the kind of things Connect can spot.

It wasn’t HMRC’s own effort, they actually worked with BAE Systems in 2010 to pull this together. It came at a cost – near £100 million – but has brought in over £3 billion in revenue. That’s what you call a return on investment. It’s all part of the HMRC mission to close the tax gap. And it’s working.

The power in it is that it can pull together all kind of analysis and join the dots to highlight things worth looking into rapidly. What that means is what would have taken investigators weeks to pull together is with them in minutes.

What can it check?

HMRC doesn’t disclose all their sources, but some that are known include:

  • DVLA
  • Council taxes
  • Insurance companies
  • Online stores, such as Amazon and eBay
  • Property websites and the Land Registry
  • Payment providers such as PayPal, banks accounts, pensions, debit, and credit cards
  • Council tax records
  • Foreign tax jurisdictions
  • Online social networking
  • Flight sales
  • Web browsing and email records

That’s a broad and expansive list. It shows how Connect could effectively examine your entire digital life. Part of this is because they are also one of the authorities allowed data as part of what is known as the Investigatory Powers Act 2016, otherwise known as the controversial “Snoopers’ Charter”.

It’s not just targeting nationwide criminal activity. It’s also spotting what could really be considered as common errors. A simple example of how this works is in 2014/15, when HMRC sent thousands of letters to individuals who it felt had not declared bank interest. This was a simple exercise of cross-checking bank interest declared on tax returns versus what banks state has been paid. As a result, when an enquiry comes your way, there is undoubtedly something which has tipped HMRC off, which Connect could have helped to spot.

It’s not quite a magic bullet. There of course are genuine reasons anomalies occur so not every red flag Connect waves is undeclared tax. This could mean things like a ‘tip-off’ from a disgruntled ex-spouse could throw it off. There is a human element to help it through and try and keep the success rate of its enquiries high. The technology is maintained by the Risk and Intelligence Service (RIS) who are looking to refine it.

Connect and the future?

The nature which Connect pulls together data and generates anomalies means it’s not a perfect science. But with artificial intelligence, they are looking to focus those results to get a higher hit-rate than before. Using AI to pull more amounts of data and give more power to analysts to make decisions with more efficacy than they have done so in the past. It will grow and get more sophisticated. After a year of unprecedented government support, it seems to me an obvious investment to strengthen the Connect system so it can recover undeclared tax. Sooner that, than drive up tax rates to compensate.

When I first found out about Connect, I thought it was a logical and brilliant use of taxpayers’ resources. It’s an incredible return and aside from stomping out evasion, it’s helping fund other services like hospitals. More than ever do the NHS need HMRC to be effective now.

We are all for businesses and individuals paying the fair share of tax. The right and correct tax, making the most of the legislation to help them plan and prepare. Not being wasteful, not being fraudulent.

The excessive amount of data they have their hands on understandably is of concern. Do they know enough, or too much? That alone is another discussion about the ethics of having all this data, but all I can say is HMRC have a duty to handle that data responsibly, as all businesses are also obliged to do so, with the DPA 2018 in force.

What if I think I’ve underpaid tax?

Understandably, this raises the question – could I be caught?

Well, the first thing is do you have anything to disclose? Don’t worry – the bookshelf you sold on eBay four years ago isn’t going to sound the alarm. There are allowances in place for things like savings or if you have income from property or trading. This stops the piffling amounts being flagged all the time. Do check your eligibility.

But if you feel you have something bigger of concern, then you should make a disclosure to HMRC using the Digital Disclosure Service (DDS). We wrote more about this whole issue here on a previous blog. It’s always better to disclose voluntarily, than have HMRC discover something for themselves and bring it to your attention.

We have had some wonderful clients come to us with this predicament. Honest, genuine people who for some reason or another just haven’t gotten things straight. In these cases, we’ve worked with them and HMRC to understand the circumstances and get everything up to date and sorted out the best way possible. Always, at the end, it’s a relief for the client.

Are you concerned about unpaid tax? Or looking to rest assured your taxes are in check? Get in touch today to see how we can help.

Ready to start the journey?

To get help with your accounts and start freeing up your time to focus on growth, talk to the Mayflower team today.

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