Connect Data Gathering
A few years ago, an Inspector of Taxes local to East Anglia had a hobby. He would frequent car boot sales and make a note of the car registration numbers. If the same vehicles turned up regularly, he would enquire as to whether those people could be deemed to be trading and from there whether any under-declared tax could be identified. Legend has it that while it may take him some time to make the connection, he was very good at his hobby. Like policemen, it could be argued that an Inspector of Taxes may never be off-duty.
Scroll forward to the modern day and HMRC have become one of the largest data collectors in the UK, if not on the planet, thanks to their computer system called “Connect”. “Connect” is HMRC’s most efficient weapon in linking pieces of our electronic lives together. Initially developed over ten years ago, the system has continued to grow and now regularly trawls the records from the DVLA and the Land Registry; auction sites; banks, pension, mortgage companies and credit cards (gaining even anonymised information); Air BnB, online advertisements for businesses…the list is growing regularly. By linking data together, HMRC can develop a picture of how you live, even without accessing social media which is another lucrative source of background information.
Beyond the linking of data, HMRC now undertake regular “Lifestyle Profiling”. “Connect” is used to run algorithms to determine if there are any oddities in the data that may prompt closer inspection. For example, can you afford to drive the expensive car (registered in your name at DLVA) on a declared gross income of £25,000 (from your P60)? If you bought it from a cash gift, who gave you the money? Have they paid the correct taxes on before the gift was made? Alternatively, is the person living at an address the same person as on the mortgage and the Land Registry? Are you selling a collection of antiques online (potentially a CGT issue), or are you buying them as well (potentially a trade subject to Income Tax)? Where it could take months or years to link data in the past, “Connect” does it virtually instantly and repeatedly as more and more information becomes available.
But let’s put things in perspective. If you use a car boot in order to sell off personal items that you no longer have need for, you are not trading and have nothing to fear from HM Revenue & Customs. Income from sundry odd-jobs may be covered by the £1,000 trading allowance which is given automatically (although can be disclaimed should you desire) and need not be declared on your annual Self-Assessment Tax Return (although a white space note is recommended if you file one). Sales of personal assets via online auctions do not automatically give rise to accusations of trading from HMRC or requests for Capital Gains Tax even if sold at a profit (especially as there are both a personal chattel exemption and an annual CGT exemption that may be in play)
If, however, you are now running a business that you have not registered with HMRC (and remember that a single transaction could be classed as trading); if you do have rental income (other than just an occasional rental income that could be covered by the £1000 rental income allowance) or have sold a second home without having declared the transaction, you should take steps to regularise your affairs with HMRC. After all, you may only need to undertake a declaration exercise and any tax due may be minimal or non-existent. It is far better to tell HMRC about it than for them to have “Connect” start flagging various matters for an Inspector’s review as one question will invariably lead to another under an enquiry.
“Connect” now shares data with over 60 nations and, by the end of 2020, HMRC hope to have some form of data sharing agreement with virtually all countries. This will truly make “Connect” a swapshop of people’s global financial data.