Is HMRC coping with the data mountain?

EFFORTS TO FOIL TAX EVASION have been boosted by whistleblowers leaking information, plus groundbreaking deals between the UK and countries famed for banking secrecy.

However, HM Revenue & Customs may have bitten off more than it can chew in terms of trawling through the data, according to one of the taxman’s former offshore evasion chiefs.

The wall of information coming out of Liechtenstein- and potentially Switzerland in the near future – has to be processed efficiently and this is not happening at the moment, believes Andy McKenna (pictured), previously head of HMRC’s offshore fraud division.

McKenna, now a director at BTG Tax, was originally responsible for the UK’s five biggest banks being hit with demands for information about overseas account holders as part the first offshore tax amnesty in 2007.

But there is now a logjam of information coming from the 308 banks hit with similar demands last year alongside the Liechtenstein Disclosure Facility.

Ironically, this suffered from a slow start as banks struggled to collate all the data required.

Because of the volume of information now coming through, there are problems channeling it properly from the risk and analysis teams who first process it to the investigators on the front-line in contact with suspected tax advisers.

McKenna describes this as a “disconnect.”

“The taxman has been serving the notices on the banks, but the big problem is what they’re doing with the information they get,” McKenna said.

More data is coming out of Liechtenstein and Switzerland as new legislation becomes active, but this comes as HMRC staff numbers have fallen significantly.

Against this backdrop, there is the potential for this “disconnect” to become worse.

In his dealings with the taxman, McKenna knows that a lot of front-line staff are “keen to get stuck in”, but he maintains they are currently starved of the information they need.

To compound the problem, even though the government has earmarked £900m for HMRC’s investigation teams, there is still too much resource being deployed in the wrong areas, McKenna believes.

The special compliance teams tasked with rooting out those not paying their taxes were putting too much emphasis on avoidance and not evasion, because of the government’s preference for clamping down on loopholes rather than wrongdoing.

“They haven’t always investigated because they’ve been diverting the resource into avoidance,” McKenna added.

However, in the cases where evasion is suspected, the taxman has also ramped up the use of requests for information, which give taxpayers one last chance to avoid prosecution by coming clean about undeclared liabilities.

These Code of Practice 9 (COP 9) requests are highly onerous for taxpayers and advisers because they substantially increase the information required from taxpayers.

“There are massive requests from the taxman for [taxpayer] information but there appears to be bottlenecks in terms of where it goes,” McKenna said.

One adviser branded the use of COP 9s as “using a sledgehammer to crack a nut” in some cases.

“I’m not sure why HMRC has registered these cases as COP 9s other than to put fear of God in to those still contemplating when, or if, they are going to come forward,” the adviser said.

On the issues raised by McKenna, the taxman was adamant progress was being made.

An HMRC spokesman said: “We don’t accept these criticisms.

“HMRC’s two offshore campaigns have raised over £480m through voluntary disclosures and since the launch of HMRC’s original Offshore Disclosure Facility in 2007 over 13,000 follow-up enquiries have been started, 12,000 of which have been completed – netting over £85m more – with a thousand more still working.

“Almost all the data expected from banks under the legal notices served last summer has been received providing information on around 120,000 accounts held by UK tax payers.

“It doesn’t follow from having an offshore account that tax is being evaded. To identify the cheats we need to compare data. This work is well underway and we are already reviewing over 1,000 cases for follow-up.”