This is fed from 28 data sources from organisations such as Companies House, Land Registry, Benefits Agency, Experian, eBay plus onshore and offshore banks. In addition, HMRC has negotiated agreements with a number of previously impenetrable overseas authorities, which includes sharing information about taxpayers, their bank accounts and the income, dividends and gains received. Examples are Liechtenstein, Switzerland, Isle of Man, Jersey and Guernsey. In addition, from 2017, 97 countries have committed to automatically exchange taxpayer information under the Common Reporting Standard (“CRS”). HMRC will receive information about overseas accounts, insurance products and other investments, including those held by UK resident taxpayers through overseas structures. In addition to the CRS, HMRC will also be receiving data on corporates and trusts under a central register of beneficial ownership.
All this collated onshore and offshore information is analysed by Connect to identify possible errors or omissions in a taxpayer’s affairs. The number of investigations commenced by HMRC that are generated by leads from Connect has risen each year and is now considered to be in excess of 90% of cases. One must now reasonably assume that any investigation has originated from an adverse risk report and that you have not been randomly selected.
If HMRC successfully challenges the accuracy of your tax affairs, any errors, omissions or inaccuracies will lead to financial penalties being levied against you. HMRC will seek to apply tough penalties, up to 300% of the tax due for offshore issues, to those who do not voluntarily approach HMRC. In more serious cases, it could lead to criminal investigation and, potentially, criminal prosecution.
A voluntary disclosure to HMRC is the best way of protecting yourself from punitive action by HMRC. If you have undisclosed income, gains, assets or investments here in the UK or overseas, then you need protection.