Last week we heard about how living in Bigdataland helped George when his house was burgled. This week we hear about the way in which living in a land of numbers affects the tax that people pay…
There was a lot on Georges mind that day. Rita’s education was going to need some financial support, and he and Susan really needed a holiday. On top of that, Christmas was coming and he was visiting the UK, which meant he had to buy presents for all his brothers’ family as well.
When George got into the office, he noticed his boss was in a bad mood. Over lunch they happened to be sat together in the canteen, and George inquired as to the problem. “I’m not happy” his boss grumbled. “The tax office just announced that the rent we got for our holiday home when not using it ourselves should be subject to tax” he continued. “In addition they seem to have discovered that I have a number of other schemes which I was told should reduce my tax payments, and they are asking for details. I don’t know why they are picking on me!”
George was worried. Although he was not well off enough to be offered any tax avoidance schemes, the last thing he wanted was to suddenly discover that he had even less money than expected. This fear was strengthened by an ominous letter on his doorstep when he got home that evening. It had the clear indications of the Bigdataland Tax and Revenue service, and George nervously opened it, fearing the worst.
His fears were quickly dispelled however. The letter informed him that the tax office had combined their information on him with other data that was available. As a result they had discovered that he was paying more into his pension and mortgage than they realised, and so he was due a rebate. They would send him a cheque for 1,000 Units (the currency in Bigdataland) within the next few weeks.
“Wow”, thought George. Not only can I buy some great presents, but we can also have a great holiday next year. I’m so glad I live in Bigdataland…
The deficit reduction programme and the need for the government to generate more tax revenues has brought to the fore tax avoidance and tax avoidance schemes by major multinationals.
The Public Accounts Committee in its annual report on the HMRC concludes that the UK Government needs to get a grip on large corporations which generate significant income in the UK but pay little or no tax. They are convinced that private sector tools for business intelligence analysis develop quickly, but HMRC does not; and they suggest that,
“HMRC should use its fully implemented analytics systems to develop a sector-by-sector approach to compliance activity so that it focuses resources on priority areas”.
But it does appear that HMRC is employing analytics as a tool to tackle tax evasion. HMRC in the tax evasion report, highlight how data analytics is employed in transforming the way data is used to identify and pursue tax evaders.
And one of the recent success stories is a £26m inheritance recovery by HMRC achieved using a system that cross references huge amounts of personal information ranging from bank accounts, loans, to company ownership and property transactions.
Across the Atlantic, the IRS is also at the forefront of using analytics. The use of analytics is translating real time data into early warning signals that are helping spot tax abuses more quickly.
Similarly, according to the Local Government Fraud Strategy, Local governments have also realised that the use of information technology can help fight council tax fraud which costs hundreds of millions every year. They have demonstrated that investment in up-front preventative checking and the use of data analytics and credit reference data bears dividends. Some examples:
- Ealing forecast savings of £7m by using analytics to tackle council tax fraud.
- Birmingham estimate savings of £10m by data-matching and collaborating on data-matching with neighbouring councils and Housing Associations.
On the flip side predictive analysis can be used to gain deeper insights into their tax processes and profiles. Almost every organization can use tax analytics to potentially gain savings, cut costs, reduce tax risks, gain tax process efficiency, and enhance tax compliance.
With respect to tax administration, predictive analytics can help tax preparers to more accurately plan and predict daily or weekly demands for tax preparation. HMRC also provides benchmarked rates derived using a sampling technique, regarding subsistence payments available for employers use. This will potentially prevent any challenges from HRMC on rates adopted and save the employer time and costs associated with working out what the ideal rates to use are.