It has recently been reported by The Telegraph that HMRC ‘doubled’ the number of staff who are trained in tax evasion surveillance.
According to a Freedom of Information request, 171 HMRC officers were trained in surveillance in 2021/22 compared to 337 in 2023/24, two years later.
We do not know if HMRC have further increased training in surveillance since 2024, but we can reasonably assume that surveillance continues to be employed as a tactic to hunt down tax fraud by HMRC today.
What can HMRC staff trained in surveillance actually do?
HMRC officers have the power to turn up to your business premises undercover. Officers might purchase goods or services from a business and later check accounting and tax records to verify that the transaction has been reflected accurately. In particular, HMRC may run these test purchases with cash transactions given the inherent risks of under-declaring profits in cash-based businesses.
The officers might also be making notes about other customers – for example in the case of a café or restaurant, the officers might note down how many covers there are and later check records to see if the appropriate number of transactions have been included in tax records.
In other cases, officers may simply be passing by premises. HMRC have been known to use publicly available information in shop windows or on advertisements to compare public information to their own expectations.
Do HMRC have other powers to look into my business?
We recently wrote on HMRC’s powers related to the use of AI. HMRC were in the news as it was reported they have been using AI to monitor social media posts as part of criminal investigations. It has also been alleged that HMRC may have utilised AI when reviewing R&D cases, which could have contributed to unfair rejections of legitimate R&D claims. HMRC have always had wide information gathering powers however, and taxpayers should not be surprised that HMRC can connect the dots from one set of records to another.
For example, offshore jurisdictions report data to HMRC annually as part of the Common Reporting Standard initiative. This can often lead to nudge letters being sent to taxpayers where individuals have failed to declare offshore income or gains. A similar initiative is coming into effect in 2026 for cryptoassets under the new Cryptoasset Reporting Framework (CARF) whereby cryptoasset service providers will be legally required to report user data to HMRC. Similarly this year, digital platforms began to report user data to HMRC, meaning that HMRC hold information on individuals who have been selling goods through online sites such as eBay, Etsy, and Vinted, as well as other platforms where individuals can sell their services such as Airbnb, Deliveroo, Uber etc.
HMRC have the power to ask you formally for information if it is relevant to checking your tax position and HMRC can do this by issuing a Schedule 36 information notice. All requests for information must be ‘reasonably required’, so there is scope to push back if you think HMRC is asking for too much. HMRC can write to taxpayers directly, but they can also issue third-party notices, requesting information directly from a third-party source. For example, if HMRC are checking the VAT position of a business they might want to send a third-party information request to a supplier of that business to provide a set of invoices. HMRC can only issue these third-party notices with prior approval from either the taxpayer or the Tribunal, so there are protections in place to safeguard the taxpayer.
A Financial Institution Notice (FIN) on the other hand does not require prior approval. These are information requests to financial institutions and are commonly used to request bank statement data directly from banks in order to check a taxpayer’s position. The request within the FIN must still be ‘reasonably required’ – HMRC should never send out any information notice without cause to do so.We do not know if HMRC have further increased training in surveillance since 2024, but we can reasonably assume that surveillance continues to be employed as a tactic to hunt down tax fraud by HMRC today.
What happens if HMRC find a discrepancy?
It is possible that through HMRC’s surveillance and information gathering they uncover a discrepancy in taxpayer records. What should happen next will depend on the circumstances that have led to any under-declaration of tax:
Non-deliberate behaviour
Where income or gains have not been declared but this was not as a result of any deliberate behaviour by the taxpayer, then it may be appropriate to make a voluntary disclosure to HMRC if errors span back beyond the current tax year or accounting period.
Deliberate behaviour:
It may be more appropriate to consider the Contractual Disclosure Facility (or COP9). This is the only disclosure facility available that can offer protection to a taxpayer from criminal prosecution, provided a complete disclosure is then made to HMRC.
No error or omission:
Occasionally HMRC’s information is incomplete or incorrect, and there may be no disclosure issue at all. If you receive a letter from HMRC suggesting errors or omissions in your tax affairs but you believe this is incorrect, the letter should always be responded to so that HMRC can review and close the case. Otherwise, you are at greater risk of future enquiry.
Should you have any concerns about HMRC’s powers and what they might find if they look into your tax affairs contact the Menzies Tax Disputes and Disclosures experts today for a free confidential consultation.
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