Big Brother is watching – how HMRC targets abuse

It’s no secret that HMRC has been clamping down on unpaid tax, on the back of government initiatives to reduce the deficit and a wave of anti-tax avoidance public opinion.

As well as continually tweaking the tax rules to plug loopholes and perceived gaps in the system, the Revenue routinely targets certain areas, industries, or parts of the economy, in its hunt for the estimate £35 billion of annual underpaid tax. However, it has to have a justification for these broad enquiries and can’t just target tax payers without some sort of evidence that abuse is occurring.

How does HMRC choose the areas of the economy to target?

The taxman has access to a wide range of different sources of data and information – for example from banks, local councils, the Land Registry (details of every property bought in the UK), the DVLA, social media, hospitals and insurers. This information is collated and analysed by HMRC’s powerful computer system, along with intelligence generated from revenue activities themselves, to identify areas of likely underpaid tax, which then become the subject of targeted initiatives.

Examples of tax payers that have recently been, or currently are under scrutiny are:

  • ‘Middle class’ professionals, who apparently are more inclined to panic and simply pay a demand for tax when it arrives and have been targeted since 2007
  • Buy-to-let landlords, 40,000 of which are the subject of a current campaign
  • People with second or multiple incomes, for example consultants, part-time taxi drivers and car boot sale or ebay sellers
  • Expats and undeclared offshore bank accounts
  • The hospitality industry
  • Trades that often operate on a cash basis


Areas of the freelance and contractor market that currently appear to be under scrutiny, from an IR35 perspective, are security, finance and banking, the nuclear industry and the public sector.

When HMRC believes it has enough evidence to start a campaign into a given sector of the economy, it will send letters to a large numbers of those individuals or businesses that are suspected of under-payment, having reviewed their circumstances.

If there is an under-payment and this is quickly rectified, often further sanctions can be avoided. However, HMRC does get it wrong and unless you are sure, you should not simply assume that because you have received a letter, you should have paid some tax.  If in doubt, it pays to get professional advice and also to conduct any correspondence with the Revenue in writing.

Posted by John Hoskin