Taxpayers would love to know just how HM Revenue & Customs is identifying those who are less than honest with their returns.
Detecting taxpayers who are not paying the right amount in to the government’s coffers is becoming a sophisticated cat and mouse game played out on computers.
For instance, HMRC has confessed an extra £26 million in inheritance tax was collected in the past 12 months thanks to a better software system.
Software is the key to HMRC efforts to catch people paying too little tax.
According to Treasury Minister David Gauke, HMRC is using “behavioural economics” to catch those who are not paying enough tax.
“HMRC has already made significant strides testing and embedding behaviour change within letters, forms, telephony and digital channels, and the results have been impressive,” he said.
“For next to no cost, HMRC has seen up to a 15% improvement in payment behaviour in some trials, simply by changing the way in which they communicate.”
At the heart of the system is CONNECT, a custom system that sifts through billions of bytes of data to find connections between taxpayers, property and their lifestyles.
Taxpayers are profiled according to their past relationship with HMRC.
“HMRC is able to separate those who are willing and able to pay their taxes, from those who might need help or those who might push the boundaries of the law,” said Gauke.
Gauke explained around 300,000 paper returns relating to inheritance tax are filed with HMRC every year. About 200,000 come from estates below the tax-paying threshold, but sorting those that were really above the threshold from such a number of returns was proving difficult.
Inaccurate tax returns
Software developers wrote code that reviewed each tax return for errors and cross-referenced the returns with other government records on property ownership, company ownership, loans, bank accounts, job history, and self assessment records to detect inaccurate returns.
The result, said Gauke, was an improved inheritance tax take.
Not only is HMRC developing computer software to detect inaccurate returns, but a vast amount of information from whistleblowers and informants phoning hotlines is also dropped in to the system.
By analysing data, CONNECT also lets HMRC cross match data collected by one office with any other, detecting previously unseen relationships between people, assets and businesses.
The internet is also an important source of data – Twitter, online property adverts and personal websites can tell the taxman more than you would think about you and your lifestyle – and whether you can afford it.