Member Article

HMRC catching tax cheats through spider webs

How does HM Revenue & Customs (HMRC) select tax returns for investigation? By building spider webs of course!

When the Inland Revenue and Customs and Excise merged in 2005, the newly created HMRC was left with a series of fraud detection systems containing huge amounts of raw data. The systems were not integrated, information was unmatched and it took hours, sometimes days, for HMRC investigators to bring all the details together and profile potential investigation cases.

Since then, however, the department has made significant progress in organising and analysing the enormous volume of data it receives and acquires. Did you know that HMRC holds more data than the British Library?

Risk and Intelligence Service

The selection of investigation cases used to be conducted at a local level by comparing similar trades and professions within the geographical area and analysing the business results achieved.

Almost all investigations now originate from the Risk and Intelligence Service (RIS) within HMRC. RIS is responsible for:

• collating information from a wide range of internal and external sources
• identifying people who are operating in the hidden economy
• exchanging information with other Government Departments
• undertaking project work to identify potential targets.

RIS considers risk on a national level rather than a local one and builds information packages to help HMRC Inspectors pursue investigations.

Connect

Connect is the name of HMRC’s award-winning data system which helps RIS in the selection of investigation cases. Data from over 28 different sources is fed into Connect, including property transactions from the Land Registry, bank interest details, employment data and even referrals from the Tax Evasion Hotline.

Around 3,200 tax investigators then use a visualisation tool, very similar to a spider’s web, to navigate around all the different data sources.

When a risk has been identified, the next step is to decide on the method of approach and the level of compliance check. This can involve a ‘light touch’ advisory intervention to a full blown investigation.

A father and two children opened a joint bank account totalling £300,000 with money previously belonging to the father. The children later closed the bank account and transferred the money into individual accounts. When the father died, the children submitted a low-value estate return of £200,000 based on the deceased’s residence only. Connect analysed the return and established links between the family members, the bank accounts and the timing of the transactions involved.

£85,200 in tax plus interest and penalties was realised through the ability of Connect to link the large bank account to the deceased’s children.

As of April 2013, Connect had delivered an extra £2.6 billion in revenue for an investment totalling around £45 million. Needless to say HMRC is very proud of the results to date, not just because of the additional tax take but because of the productivity benefits. Fewer staff are now required to trawl through reams of raw data and investigators are concentrated on the highest risk cases.

An investigation is no longer based on a ‘hunch’ or a dubious entry on a tax return. HMRC Inspectors are reaping the rewards of the combined human and computerised approach and are infinitely better prepared than ever before.

This was posted in Bdaily's Members' News section by Guy Smith .