HMRC has many different sources of information that it can use to compile information about every UK taxpayer. It seems that, right now, it is more interested in building an extensive database of information rather than collecting tax revenues ...
This is not just limited to businesses or to income tax in the case of individuals, but any type of tax at all. It can make enquiries about tax returns and can even look at current or future liabilities not included on a tax return!
It is even allowed to ask third parties about you when you've been involved with particular types of financial transactions! This is why every accountant and tax advisor says you should keep your business and personal banking separate.
A lot of bulk gathering goes on as well. Letting agents can be forced to provide information on gross rents received by landlords, and property websites have to tell them who's advertising what and at what price. Credit reference agencies must supply information on credit ratings, credit card companies will supply statements on demand and even luxury item/service subscription websites are told to give up their client lists.
When it comes to social media, HMRC apparently scrapes public-facing social media websites. If your Facebook profile is set to public and is listed in the likes of Google, you may not want to be posting about your expensive five-star holiday if you have any tax arrears.
Any micro-business using social media to sell their products and services from the kitchen table better make themselves aware to HMRC because Facebook pages are public, and they will find out what you're up to, then figure out how much money you're making.
HMRC also gets information from other government departments. Local councils tell them who is in receipt of housing benefit payments or how many individual residents may be in an HMO. Land Registry, Companies House, DVLA ... well, you can imagine the list is pretty endless, and it's all about building a profile of an individual, so HMRC can see if you are telling the truth about your income.
And now, HMRC is exchanging information on UK taxpayers with tax authorities across the world using the International Exchange of Information framework. Even more data and ever more sophisticated analysis.
Even in this digital age, there are times where a good old phone call can drop you in it. If you've got a soon-to-be-ex-spouse, disinherited offspring or even disgruntled employees, they can all report you via tax evasion and fraud hotlines. Not everything HMRC investigates is true, but can you afford the hassle of an in-depth investigation?
HMRC has a massive database called CONNECT, which has billions of pieces of information on UK taxpayers. If something about you seems a little dodgy, for example, your tax returns don't match up with your lifestyle, then CONNECT flags this up, and HMRC may start an investigation into you.
Despite occasional glitches in the matrix where CONNECT throws up incorrect flags and the wrong people get investigated over trivial things, it has been hugely successful, resulting in billions of pounds of tax revenue being collected. It is growing more detailed and sophisticated by the day.
Knowing this, it's probably not a good idea to try and hide income from HMRC. They will discover it eventually.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.