As the general election on July 4 approaches, financial experts warn that the taxman will emerge as the biggest winner, with both major parties planning to expand tax investigations significantly. This intensified scrutiny aims to clamp down on tax evasion and boost government revenues.
HM Revenue & Customs (HMRC) has already enhanced its capability to scrutinize taxpayers’ financial affairs through its advanced supercomputer, HMRC Connect. This system, holding 55 billion items of data, cross-references taxpayer information with its records to identify discrepancies. The recent integration of machine learning artificial intelligence (AI) has further refined its ability to pinpoint potential targets for investigations.
This technological advancement is complemented by an expanded international reach. Research by law firm Pinsent Masons reveals that in 2022, HMRC received 9.5 million disclosures of data about UK taxpayers from foreign tax authorities, marking a 48 percent increase over three years.
Shadow Chancellor Rachel Reeves has announced Labour’s plan to invest £555 million to recruit additional tax inspectors. This move aims to reduce evasion and generate over £5 billion annually by the end of the next Parliament. The financial return on these investigations is substantial, with every £1 spent bringing in £30 in tax revenue.
Steven Porter, head of tax disputes and investigations at Pinsent Masons, highlighted that under the Conservative government, HMRC collected an additional £1.6 billion last year by targeting avoidance schemes. This included £83 million from investigating trusts, £350 million in inheritance tax, £570 million in capital gains tax, and £86 million in additional stamp duty.
“Investigations have proven to be very successful for HMRC. It’s almost certainly going to push even harder in that area under the next Government,” said Porter.
HMRC Connect gathers data from a wide array of sources, including online retail platforms like eBay, Gumtree, Etsy, and Vinted, property sales sites, social media platforms, and online payment providers. Additionally, it collects information from banks, insurers, pension companies, airports, airlines, local authorities, and other government departments.
Traditional investigative methods remain in use as well, with HMRC paying £509,000 to confidential informants for evidence of tax fraud in the year leading up to March 31, 2023.
The British public is contributing more to HMRC than ever before, with rising income tax, inheritance tax, and capital gains tax bills. Tax expert Andy Wood from Crypto Tax Degens warns that holiday let owners could face significant penalties or imprisonment under the latest HMRC crackdown.
“In the 2023/24 tax year, HMRC opened almost 2,000 investigations into landlords letting out via Airbnb or other short-let platforms, up from just 95 in 2021/22,” Wood stated.
He added, “This twentyfold increase indicates that tax authorities are paying much closer attention to people’s tax situations and are conducting more investigations accordingly.”
With the election on the horizon, both Labour and the Conservatives appear committed to expanding HMRC’s investigatory reach, ensuring that no taxpayer can evade scrutiny. This move is expected to secure substantial additional revenues, reinforcing the taxman’s role as a formidable force in the UK’s financial landscape.
