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Freelance journalist Nick Morgan, author of 'Tax Investigation For Dummies' considers how HMRC gathers information about taxpayers for enquiry cases.

What Does HMRC Know?

Quite a bit: if they’ve launched an investigation they have done their homework first.

• If you do any work that is linked to your National Insurance number HMRC will know about it.
• If you get rental income for a property and you have gone through an agent they will know about that too (agents are required by law to inform HMRC of your income).
• Bought a property? HMRC have access to the records - and you will have paid the Stamp Duty of course which they will know about. HMRC can also find out how much interest you are making in the bank.
• They - like anyone - can easily look at the electoral roll to see who lives in your home.

At a more extreme level HMRC have the power to get Oyster card details - so they can tell when and where you travel in London. They can also get details of your weekly shop at the supermarket - via your loyalty card. Do a bit of DIY that spills over into a business? Well then HMRC can hunt down your B&Q activities, again through your handy loyalty card.

The Power of the Internet

HMRC know how to use Google and they also will check Facebook and MySpace profiles. If your page has a photograph of your good self piloting your beloved helicopter in Hawaii and you’ve declared your income as £10k, HMRC will want to know how you can get your lifestyle on your limited income.

Visiting Your Place of Business

The 2008 Finance Act has greatly enhanced the powers of HMRC. Of particular note is the ability to turn up at your place of business unannounced and demand to see your paperwork (nb HMRC say they won’t do this without proper authorisation. More on new HMRC powers here Review of HMRC's Powers, Deterrents and Safeguards and here FAQ: New  Compliance Checks). [ See also Cause for Concern? on TW - Ed ]

They will clock the walls – art collection?

"Is that a real Picasso – a gift from your father? Ah, well that will have been declared of course?"

If you work from home HMRC are only allowed to enter areas where work takes place. They will – of course – try to have a good poke around.

 “Would it be OK if I just popped to the loo?”

 “No, I don’t think so.”

The above is an extract from Tax Investigation for Dummies' by Nick Morgan, a freelance journalist who was the subject of an HMRC enquiry into his self-assessment return. The book can be ordered from TaxationWeb's sister website, TaxBookShop.com (Tax Investigation for Dummies).

About The Author

At the start of 2005 Nick Morgan was working as a self-employed freelance journalist. HMRC opened an investigation into his tax return.

Nick attended an interview (unrepresented) and was both open and truthful. He also supplied all the documents asked for.

An investigation like this which is small and where there is full cooperation shouldn’t have lasted more than 12 months. But this went on for five years.

The investigators were bullish and petty with HMRC showing neither proportionality nor regard to the cost (to the taxpayer) of running such a small investigation for so long.

Nick used his journalistic skills to expose HMRC; he recorded telephone calls and interviews and carried out Freedom of Information and Data Protection searches. These investigations broke new ground and exposed the investigators as incompetent and vindictive. All this information was uploaded on a website for anybody to see.

It soon became apparent that what was happening to Nick was typical of what was happening up and down the country.

Nick further exposed HMRC’s underhand practices in a Sunday Times spread and other national papers.

Since then HMRC has put pressure on its investigators to be more proportionate and to be more mindful of expense.

To help others Nick built tax-hell.co.uk where he’s written broadly about tax investigation, tax law and the tactics of HMRC.

The website has helped 100s of 1000s. Some leave comments about how Tax-Hell.co.uk has helped them. Many say, “I don’t know what I’d have done without you.”

He’s written three ebooks which translate HMRC-speak into clear English and he also offers free tax advice (from a fully qualified advisor) to anybody who needs it.