Out-Law News | 06 Sep 2018 | 5:15 pm | 2 min. read
The guidance also mentions other 'open source' internet sources which HMRC will monitor such as news reports, internet sites, Companies House and land registry records.
"The guidance confirms what we already know – that HMRC plugs huge amounts of data into its state of the art 'Connect' computer system to identify those who may not be paying the tax they should," said Steven Porter a tax disputes expert at Pinsent Masons, the law firm behind Out-law.com.
He said that HMRC's use of land registry records has led recently to the sending of 'nudge' letters to people identified as having sold a second home but not having declared a profit in their tax return. These letters are intended to act as a prompt, giving taxpayers an opportunity to explain why they are not subject to tax or to pay the outstanding tax.
"In stating specifically that HMRC will look at information on the internet, HMRC is making sure that such intelligence work will be classed as 'overt' and not 'covert' surveillance, which means that HMRC does not have to get specific authorisation to do it," Porter said.
"However, it also serves the dual purpose of reminding those with undeclared income or gains that there is a good chance that the tax authorities will catch up with them. Whilst criminal prosecution cannot be ruled out in cases of tax evasion, it is much less likely for those who come clean with HMRC and offer to settle their outstanding liabilities. As well as significantly reducing the risk of criminal prosecution, approaching HMRC before they catch up with you, should mean lower penalties," he said.
HMRC's criminal investigation policy states that it is HMRC’s policy to deal with fraud by using "cost effective civil fraud investigation procedures" under Code of Practice 9 (COP 9) wherever appropriate. COP 9 gives the taxpayer the opportunity to make a complete and accurate disclosure of irregularities in their tax affairs.
Criminal investigation is usually reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is very serious. The guidance gives examples of when HMRC may prosecute. These include organised fraud, deliberate concealment and forgery of documents but also where materially false statements are made or materially false documents are provided in the course of a civil investigation. The guidance indicates that a criminal investigation is also likely where when using an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme.
"Time is running out for anyone with underpaid tax involving offshore matters to regularise their affairs without being exposed to swingeing new penalties. Those who take the first steps to correcting their non-compliance before 30 September 2018 may be available to avoid penalties of as much as two or three times the unpaid tax," Steven Porter said.
A new legislative requirement to correct offshore non-compliance committed before 6 April 2017 will result in higher than normal penalties for those who do not disclose the fact that an offshore tax irregularity exists by 30 September 2018 and make a full disclosure by 29 December 2018.
There will be standard penalty equivalent to 200% of the underpaid tax liability which can be reduced to a minimum of 100% of the tax involved depending on the taxpayer's level of co-operation with HMRC, the quality of the taxpayer's disclosure and the seriousness of the taxpayer's failure to correct. In the most serious cases an asset-based penalty of up to 10% of the value of assets connected to the failure will be charged.