CONNECT - HMRC use of Third-Party Data

CONNECT - HMRC use of Third-Party Data

Through their CONNECT data system, HMRC can access large quantities of financial data from third parties which helps it target businesses it considers are not VAT compliant. This type of data collection allows HMRC to challenge the recorded business takings when it makes unannounced visits to premises at the end of the trading day and looks at ‘z’ readings and gives HMRC strong grounds to assess for suppression of takings/income. It’s worth noting that HMRC are not simply carrying out these visits for VAT purposes but using the data to work out any undeclared income related to other taxes.

HMRC often make more than one unannounced visit and usually these take place on a Friday or Saturday evening; these visits can be part of a wider target of the business and can be combined with test purchases and possibly observations some days or weeks before the invigilation visits. 

A key aspect of these visits is that since HMRC have had access to Merchant Acquirer (Banks) data on credit and debit card spend at businesses they are now using that data as the basis for establishing an estimate of what they believe has been suppressed.  This is a clever approach by HMRC and often difficult to challenge but at Centurion we have experience in dealing with such matters and have had a level of success in reducing what can be significant proposed assessments.

Whilst many sectors may not receive a VAT inspection for years from HMRC this drive to digital within HMRC is producing more targeted visits as noted above and more Desk Audits where HMRC request specific invoices or information to verify a particular VAT Return.

HMRC – Nudge Letters

HMRC have adopted this approach increasingly over the last year. Open letters from HMRC are being sent to a specific sector asking generic questions about that organisations’ approach or handling of VAT in a particular area. Often these “nudge” letters request a response by a specific date or ask for notification of the position taken on the matter by that organisation.

We have seen such letters around the Zero-Rating Certificates issued for qualifying building projects and on the appropriate application of the Reduced VAT rate on qualifying fuel supplies.

It seems an approach by HMRC that will continue and speaks again to their use of resources in a very targeted manner where greatest revenue potential is perceived to exist.