In the first instance, HMRC will be using this information to warn that tax may have been underpaid and allows for the taxpayer to review and correct the position. Innocent mistakes can happen and this warning system will allow these issues to be resolved. Previously the underpayment may not have been noticed for some time and therefore the debt and interest would have to be paid. It could therefore be useful for those that have genuinely made mistakes.
As well as picking up information with regard to income from work and investments the system will be able to look into credit card transactions, information from the Land Registry, data from over 60 countries from banks and financial organisations, not just those from British Overseas Territories.
Land Registry records can show houses that have been purchased and ensure the correct stamp duty has been paid. Records can also show whether properties have been rented out and if the income has been declared. Also, purchases can be reviewed in line with income to see whether the taxpayer could realistically afford the property from their declared income.
Transactions at the DVLA can be reviewed to see what vehicles have been purchased. As well as this HMRC could look at Gumtree and Ebay to seek out traders and look into social media including Facebook and Twitter. In some cases HMRC may even be able to look into an individuals search history and e-mail records.
In summary, the new system is further reaching than I think most will have imagined.
If the system is used in the right way then it should be able to assist those that have made an innocent mistake, provided they are given the opportunity to correct the position and pay across the tax that is outstanding. It could also assist cash flow for those individuals, knowing at an early stage that there is tax to be paid, rather than finding out several years down the line when the issue could have compounded with the same error occurring each year.
For those that may not be completely honest with the taxman, this should be a useful tool to detect the misinformation at an early stage, when the amount could still be recovered. If it is not detected for years the amount may have reached a level where HMRC have to write off debt as the individual no longer has the money to pay the debt.
Whilst some will see this as a “Big Brother” system, others will welcome the change as a way to ensure that people are paying their fair share of tax.