Here’s How The UK Government Is Using Big Data For Tax Collection
Governments around the world are stepping up their use of big data for tax. They are depending on it more heavily than ever to ensure compliance and eliminate waste. The UK government has recently begun using big data for tax policies.
A couple of years ago, the United States Internal Revenue Service admitted that it is using big data to stop tax cheats. Among the strategies they employ include data mining social media content for evidence that people are living a more affluent lifestyle than their tax filings suggest should be possible. They believe social media data mining and other big data strategies are key to cutting the $300 billion in lost taxes every year.
The UK tax authorities seem to be following suit. Tax Evasion and Avoidance collectively cost the UK £6.9 billion every year. Increasing public pressure over large companies evading tax, especially at a time when UK government spending to public services is being cut, is driving the government to act. Therefore, they have sought data on citizens to develop predictive analytics models to conduct better audits.
As well as new laws and more extensive powers for the various government bodies enforcing those laws, the UK government are turning to big data for tax and data analytics to help tackle the problem.
Before delving further into the role of big data for tax, it’s important to understand the difference between tax evasion and tax avoidance. It’s outlined here, along with some charts showing how some specific tax avoidance schemes operate in the UK. The basic difference is that tax evasion is a completely illegal practice of either not reporting income or trying to claim for tax deductions that you aren’t legally eligible for. Tax avoidance is more complicated, typically following the letter but not the spirit of the law by moving money between multiple companies and/or trusts to avoid taxation.
Tax authorities plan to increase the amount of data Her Majesty Revenue and Customs (HMRC) hold and can analyze. They’ve done this by extending their legal right to gather data from merchant service providers and data aggregators, including those that are based outside of the UK. This is a crucial step, as many Tax Avoidance schemes use businesses and trusts based overseas.
