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For many decades, HMRC have received returns from all UK banks and building societies of interest credited on their customers’ accounts, and have had access to other government agency records. Over the years, we have occasionally seen HMRC enquiries triggered by interest income or a property disposal omitted from a tax return.
HMRC ‘Connect’
HMRC introduced their ‘Connect’ supercomputer in 2010 and that system continues to be developed. ‘Connect’ compares taxpayers’ records automatically with multiple databases accessible by HMRC. These include not only government agency records (eg DVLA, Land Registry, DWP and council tax) but also, we understand, some information from banks, credit agencies and trading websites.
Latest developments
Recent new rules now require digital platforms operating in the UK to collect and share data with HMRC (including name, address, national insurance number, annual income, number of transactions and fee charged by the platform) where the annual transaction value exceeds £1,000. These requirements apply to:
Goods-selling sites (eg eBay, Vinted)
Service platforms (eg Fiverr, Upwork)
Rental platforms (eg Airbnb, Booking.com)
And from April 2027, banks’ interest returns must include each accountholder’s national insurance number. Over the next year, if your bank asks for your national insurance number, you will know why!
Recommendations
While many of us may object to the ever - increasing surveillance which digitisation permits, it is a fact of life. And, if better information enables HMRC to better target their enquiries on non-compliant taxpayers, that may reduce enquiry risk for the compliant majority. Nevertheless, it is essential to take care. To help avoid a tax enquiry (and to reduce the risk of HMRC requiring private financial information in the event of an enquiry) we recommend.
Using a dedicated business bank account to keep the records clean and to avoid unnecessary review of personal transactions.
Recording each income and expense clearly and accurately.
Keeping copies of all receipts and invoices – HMRC may require these in the event of enquiry.
Keeping full details of all personal income – credit interest, dividends, property letting etc. Due to the savings allowance and dividend allowance, there is often no tax payable on modest income from interest and dividends, but it must be disclosed (unless an ISA). Omitting such sources gives HMRC an easy opportunity to open an enquiry, if so minded.
Please contact your usual Simpkins Edwards contact if you would like recordkeeping advice, or if you are concerned to report previously undisclosed income or gain before HMRC identify it.