Taxman's incredible technology tracks down tax dodgers

The taxman has spent the last seven years developing a computer programme called 'Connect', which has an extraordinary ability to spot tax dodgers. The system trawls databases of personal finance information, spots connections between people and businesses, and looks for mismatches with the information that taxpayers have given in their tax returns. The incredibly complex system has cost a reported £80 million so far, but since 2008 it has clawed back £3 billion extra in tax.

The computer program was revealed by accountants BDO in a new report. It said the programme searches 30 sources repeatedly to capture new information, check records against one another, and highlight potential areas for investigation. These sources range from public sector records like the DVLA to private businesses.

What does it know?

It means, for example, it can compare your bank account balance - and the money going in - with information from your tax return - or PAYE data submitted by your employer. It can also compare the amount you claim to have paid into your pension - and therefore declared tax relief on - with the amount actually paid into your pension. In addition, it can spot income from savings, and compare it to the savings income you declared on your tax return.
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Clever data collection tools can also keep an eye on online auctions and marketplaces, to check whether you have an unusual amount of activity on the sites that could hint at undeclared income. It can also access records of things like the car you are driving, so it can ask questions of people who declare low levels of income and drive expensive luxury cars.

The idea is that if any of these things don't match up, HMRC can identify you as a target for further investigation. Already Connect is responsible for highlighting the vast majority of cases for investigation.

The report added that the programme is getting increasingly powerful, which means it can search further and faster. From September next year HMRC has access to files held by banks and financial firms in British overseas territories, and in 2017 it will get access to another 60 countries - which will all be included in searches by Connect.

Should you be worried?

Of course, powerful technology like this raises concerns that inaccuracies in underlying records could trigger tax investigations on completely innocent people. Then there are the security issues that always come with processing this level of data. There will be some people who despite having a completely clean tax record, still don't like the idea of their financial dealings being searched.

However, in an age where the government is squeezing every possible penny out of honest taxpayers, it's good to see government agencies are also working on solutions that will squeeze every penny out of those trying to cheat the tax system too. As a spokesperson told AOL: "Connect is an important tool in ensuring we maximise revenue. It brings together over a billion pieces of data which our analysts use to identify those who are determined to line their own pockets by cheating the UK of vital tax revenue."

But what do you think? Are you happy for the system to check your records, in order to track down tax dodgers, or does it leave you feeling a bit unsettled? Let us know in the comments.

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