What you should know about HMRC’s use of algorithms.

Imagine an IT tool that helps find potential tax fraud and transaction errors, and identifies criminal networks. Imagine it doing in minutes and hours what used to take days and weeks.

Imagine it could bring together data from across HMRC, and multiple financial sources, to create profiles of individual taxpayers. Give it access to information from tax returns; bank accounts; pensions; online payment providers like PayPal; overseas tax authorities; and government agencies like Companies House, the Land Registry, and DVLA. Then add taxpayer footprints on social media; information from Google Street View; eBay; flight sales and passenger information; and property letting agents to the mix. And the list goes on. Just for good measure, imagine designing it alongside first-in-class companies like defence and security solution provider, BAE Systems: and AI-leading US data analytics firm, Palantir.

HMRC doesn’t need to imagine it, though - because it’s done it already. The Connect data system, used by HMRC, has been growing in size and sophistication since it was introduced in 2010.

Connect is now one of the largest data sets in government use. It’s key in HMRC investigations, and the bottom line speaks for itself. Connect has, on average, been bringing in an additional £3.4 billion in tax each year. In 2024/25, the extra tax take for HMRC hit £4.6 billion.

HMRC is understandably slow to talk about exactly what goes on under the bonnet. But what it has said is probably enough: Connect exists to identify ‘“hidden” relationships between people, organisations and data that could not previously be identified’. It turns the spotlight on anomalies between things like bank interest, property income and what HMRC calls ‘other lifestyle indicators’. One expert put it like this: ‘The algorithms that it uses allow HMRC to spot anomalies that would otherwise go unnoticed by the human eye’.

So, what does that mean for you? Essentially that HMRC can, if it wants, see things it would never have been able to see before. It has the potential to check where someone buys expensive assets but is only reporting small amounts of income. Undoubtedly, HMRC is sometimes correct in identifying errors and evasion; but equally, it sometimes adds two and two and makes ten, and answering unnecessary questions from HMRC is a position no one wants to find themselves in. The first line of defence is always to have the right records to back up any business and personal transactions, and we are here to advise.



We can help keep you on the right side of HMRC’s data analytics, and compliant with all your tax and accounting obligations. Please don’t hesitate to contact us.