How HMRC is using modern technology to access information on tax

The Taxman has resorted to weapons-grade technology to get information on tax. But is it a step too far? Matt Packer explains the system, and fields some contrasting expert views

Big Brother is no longer merely watching you: he’s funnelling platoons of software-spawned creatures into your computer – all at the behest of HMRC.

It has been happening for longer than you might think. Back in the summer of 2011, HMRC openly announced plans to use ‘web crawlers’ – also known as ‘spiders’ or ‘spybots’ – to nose around for irregularities in people’s finances.

The catch being that they would be picked up not from the tried-and-trusted evidence provided by current-accounts and credit-card use, but from secondary and tertiary computer use linked to emails and social networking.

Who HMRC is targeting in its blitz on tax

Key targets for the arachnid invasion were suppliers of goods found on e-auction sites, teachers who offer personal tuition after hours and handymen such as plumbers and electricians who carry out odd jobs on the side. HMRC resorted to a digital sweep was spurred by what it considers to be worryingly high levels of tax avoidance hindering the work of the UK Treasury.

Soon after coming to light, HMRC’s announcement was forgotten about – until May last year, that is, when it emerged that the organisation was widening its net. New demographics caught up in the spiders’ web of intrigue included curry-house owners who favour cash transactions over electronic payments, taxi drivers, property-rental firms and market traders.

Invasion of privacy: should HMRC be accessing information on tax?

Let’s be clear: tax avoidance is a major issue. Yet so is invasion of privacy. Over the past two years, our newspapers have been awash with reports of the phone-hacking scandal that the cancelled News of the World admitted to perpetrating.

That saga has played out in the wake of revelations about bugged wheelie bins, plans for a national DNA database – and the Communications Data Bill: a piece of legislation that would enable the government to monitor people’s web use, consequently earning the nickname the ‘Snooper’s Charter’.

A £45m system designed to spy on tax information

Such coverage has led to intense public suspicion of surveillance by either corporate or official parties. Yet HMRC’s crawler technology is based upon an elaborate – almost militarised – £45m computer system designed by leading defence contractor BAE Systems.

The software is supposed to work by creating ‘spidergrams’ of people’s social media and email habits, then analysing their shapes to determine likelihood of offences. HMRC says that specific patterns flag up warning signs. But what are the chances that they could end up pursuing false positives and harassing innocent people?

We put these ethical dilemmas to experts in the fields of tax and civil liberties to see what they thought of HMRC’s methods…

BACK THE BUGS: Richard Murphy, director of Tax Research UK and author of Over Here and Under-taxed

‘HMRC has a legal duty to collect all the tax owed by those resident or trading in the UK. In a complex, technology-based society, that must mean that it will use complex technology to collect information on the likely patterns of income and gains that those resident in this country enjoy, if the organisation is to have any hope of tackling the UK’s tax gap.

‘HMRC thinks that more than £20m of tax is evaded in this country each year. I consider that figure absurdly low, and think that £70bn may be a more accurate sum. Much of that arises simply because people do not declare income sources and gains that they think they can keep hidden – e.g., because they arise from web-based activity, or through web-based payment services, or occur offshore.

‘If HMRC can identify those undertaking that abuse, we should all be pleased. There would be little or no need for austerity in public services if all tax due was paid, and we’d all be better off as a result. In addition, tax rates could probably be cut. In other words: we’re all victims of the crime of tax evasion.

‘Does it matter, then, if HMRC has access to data? No. Not at all – subject to one, important proviso, which does not always operate: that it must have a duty to disclose what it knows to those who it is investigating, any time a significant stage in an investigation has been reached. Any citizen has the right to know what they are alleged to have done. That apart, though, the fact that HMRC has increased resources to tackle tax crime – for that is what we’re talking about – has to be good news for everyone but those who commit it.’

SWEEP OUT THE SPIDERS: Emma Carr, deputy director of privacy campaign group Big Brother Watch

‘Any data collection must be absolutely necessary and proportionate, and be considered alongside less-intrusive alternatives. This plan is straying dangerously close to a gigantic fishing trip, with data pulled from social networks and other sources without any authorisation under surveillance legislation.

‘We have previously warned that this kind of data collection is stretching the existing law to breaking point, and that it’s far from certain that collecting information from the internet in this way is legal.

‘The danger is that this could turn out to be the thin end of the wedge – and that soon, HMRC will seek increasing amounts of information about individuals and businesses. Under the draft Communications Data Bill, for example, HMRC was one of the organisations that would be able to access the websites we visit, who we email and details of social media messages.

‘It is wholly wrong for the Taxman to be going on fishing trips – analysing huge amounts of personal information to try to spot potential evaders. It is far from clear that the number of false positives wouldn’t cripple the investigators, and the nature of a civil society is threatened when information is collected on innocent people without any prior suspicion whatsoever.’

For more information and guidance on the ethical issues surrounding tax evasion and avoidance, visit the AAT Ethics website.

Matt Packer is a freelancer journalist who has contributed to Accounting Technician magazine, 20 magazine and the CMI website.