Tech underpins HMRC tax gap driveby
New technology is spearheading HMRC’s efforts to improve transparency and close the tax gap, according to Treasury minister David Gauke.
In a speech to the Institute of Fiscal Studies last month, the exchequer secretary to the Treasury revealed how analysing vast amounts of data to segment taxpayers into different groups was helping the department to achieve its aims.
A high performing tax system needed to be supported by good systems to make collection, compliance, and enforcement easy so that taxpayers would believe it was being administered fairly and effectively, Gauke said. This would promote a “self-sustaining culture of complilance”.
The department applied behavioural economics to develop a more nuanced understanding of taxpayers, and had achieved up to 15% in increased payments for next to no cost in trials where it had refined the way it communicates its demands.
“HMRC, like a business, needs to understand its customers to be successful,” he said.
But the real pay-offs came from deploying 21st century technology in the shape of CONNECT, a program that allows HMRC to cross-match vast amounts of data to separate taxpayers into categories according to their willingness to comply with the tax system.
This segmentation doubled compliance revenue to nearly £14bn in 2010/11, during a period when expenditure on these activities had been cut by 20%.
“Through using technology, skilled tax and data analysts and common sense, HMRC is literally providing more for less,” Gauke claimed.
By linking data collected in different parts of the department, CONNECT can uncover previously hidden relationships between people and organisations. In the case of inheritance tax, the analytical software helped HMRC develop a single risk code based. Property ownership and transaction data, company ownerships, loans, bank accounts, employment history, and self assessment records relating to 300,000 paper returns were brought together in a new way to spot estates that were being falsely submitted as being below the £325,000 IHT threshold.
HMRC interventions on these non-taxpaying estates reaped an additional £26mi in tax, the minister said.
Other examples included preventing hundreds of millions of pounds in fraudulent VAT claims, and identifying offshore non-compliance worth some £50m.
“Overall, through making better use of the data HMRC has, CONNECT has already generated around £1.4bn in additional tax yield,” he said.
CONNECT was also feeding into HMRC’s successful disclosure campaigns where professions such as medics, plumbers and private tutors were being targeted with offers to disclose unreported income. “Campaigns have brought in more than £510 million in voluntary compliance. And CONNECT has helped enable HMRC to recoup a further £120 million by finding and taking action against those who refused to engage,” Gauke said.
“These kinds of campaigns are particularly important, since all too often a tax evasion issue concentrated in a single professional market tips the whole balance against the compliant, and means that the compliant find business harder as a result of less scrupulous competitors undercutting them by evading tax.”
Anne Fairpo commented on the speech in her 24 September podcast: “It’s mostly a marketing pitch for HMRC technology.
“They’re aiming for a data-driven view of taxpayers that draws on a number of sources. I’d be interested to know what the third party data is. Coud it be banks? There’s the information they’ve received from places like HSBC overseas, but as far as I’m aware they’re not entitled to everybody’s bank information from across the UK.”
HMRC could acquire relevant data by buying it from external sources such as credit agencies, she added.
“If it is what they are doing, they are going to need a much better understanding of businesses and the way people operate if it’s not going to wind up as a particular issue. Having data is fine, cross-checking is fine; actually understanding the results is the complicated bit.”
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AccountingWEB’s Editor at large has been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he continues to investigate the profession's use of technology around the world. He devotes his spare time to technology history and an oddball collection of stringed instruments...