VAT Inspections: Beware AI

It always used to be the case that HMRC inspections were decided by a business’s background including size, compliance, complexity etc. Many VAT inspections now, however, are based on information from a data system which HMRC call “Connect”.

Instead of HMRC relying on information provided by businesses on VAT returns, Connect draws on statistics from a myriad of government and corporate sources to create a profile of each VAT registered business:

• Banks,
• Pensions,
• Credit card processing companies and online payment providers,
• Credit reference agencies
• Social media,
• Online payment processors (including PayPal)
• Amazon, eBay & Gumtree
• Google street view
• Council tax records
• Electoral roll
• Insurance companies,
• Airbnb
• DVLA,
• Local authorities,
• Property websites,
• Foreign tax jurisdictions
• Land Registry
• Companies House
• Tenancy deposit scheme
• Border agency
• DWP
• Flight sales

If this data varies from that submitted on VAT returns it is more likely that that business will be inspected. The Connect system can also access individual’s digital information such as web browsing and emails.

It is understood that less than 10% of all VAT inspections are now random. The Connect system is, and will be, ever more important as HMRC is losing significant resources.

Disclaimer - All information in this post was correct at time of writing.