Introducing "HMRC Connect" - Ai Is After You!

I wish this headline were a joke. In 2015 The Telegraph reported about HMRC's new ai powered software called "HMRC Connect".

This software spies on you...everywhere! It's not science fiction, it exists and they spent £80M developing it.

It scrapes the web for digital footprints and evidence of you, your business, your lifestyle, property transactions, bank data and more.

The data is then compared to your tax return submissions etc, and where inconsistencies exist, you get flagged for inspection.

With MTD coming into force, its imperative your MTD submissions are accurate. We'll get MTD in a minute.

 

What Can HMRC Connect Do?

An article run by This Is Money highlighted that HMRC Connect holds 55 Billion data points of taxpayers data. That's a scary amount of information (and power!)

So what info are they collecting?

Here are just some

• Tax Documents - They have all tax returns, vat returns, PAYE records, company accounts and more
• Property - Council tax bills,
• Property Rental - Whether its AirBnB, a Buy To Let or even renting out your home for a period, its all on their files
• Land Registry - Any properties you've owned, sold, rented out, its all there on file (the purchase price and selling price as well)
• Bank Data - They have all UK bank data and the bank data from 60+ overseas countries
• Crypto - Whether business or personal, they know your trades and the amount you have on account
• Savings - The nest egg? They know about it!
• Investments - The secret pot hidden away? Its on their records
• Pensions - Every penny you've paid in or received, they know. Easily cross compared to pension relief claimed.
• Credit Cards - They know what your business took in card sales. They also know what you borrow on cards and monthly payments
• Side Hustles - They have data from Amazon, Ebay, Vinted, Facebook Marketplace, GumTree, OnlyFans, Twitch, Brand Deals, Patreon, Fansly, Depop
• DVLA Records - They know what you drive and even that cheeky wee investment car parked up at an anonymous garage.
• Income - Whether its PAYE pay, contracted payments or company benefits its all reported to HMRC
• Maintenance Payments - DWP data feeds directly in to HMRC's ai system.
• Social Media - Whether its holiday pics, mentions of being away, pics of your flashy new gadget, car or house, its all scraped into their system
• And There's More! - This isnt even all the data they collect!

 

How HMRC Connect Works

Backroom analysts at HMRC use "lifestyle profiling" to unearth anomalies. Drive an expensive car? They want to see the income to match. Claiming it was a gift? They want evidence of that gift (and you can be sure they will then profile the person who gifted the car). One question, literally leads to another question. They have multiple profiling metrics for individuals and businesses alike.

 

Why HMRC Connect Is Relevant To MTD

Quite simply, "there is nowhere to hide". Fail to declare something to HMRC and if their system has data to the contrary, an inspection and likely fines and penalties will arise. And these fines are painful! They ain't cheap!

Thus, accurate and on-time MTD submissions are imperative.

 

What About Limited Companies And MTD?

Most of the info on this page relates to sole traders and landlords.

For now, HMRC have only consulted on Limited Companies filing via MTD, there is no plan to implement this as yet (Source: HMRC Consultation Guides) and further stated this would not be any earlier than April 2026 (Source: MTD For Corporation Tax) as their focus is on VAT and sole traders (and landlords).

Thus, some non vat registered sole traders have decided to convert to Limited Companies to forego the MTD requirement for now.

 

What Is MTD?

Making Tax Digital ("MTD") is a new regime for submitting your accounts to HMRC. It requires businesses to have compliant bookkeeping with all data being submitted to HMRC along with the final totals.

Gone are the days when you put totals in boxes.

HMRC now require all the bookkeeping entries behind the totals and in digital format. This means that the source data is dynamically linked to the totals (kinda like a formula adding it all up!). This allows HMRC to examine your transactions. They use Ai and sophisticated systems to look for anomalies that then trigger investigations. These can lead to hidden tax bills, penalties and fines. In plain English "it's time to get your house in order", we've been warned!

 

What Does It Mean For You?

• Digital Record Keeping - Undertaken in "MTD Compliant" Software and reconciled.
• Digital Submissions - Submit VAT (and soon other taxes) direct to HMRC via MTD software.
• Accounts - Now submitted quarterly not annually (more work for the accountant).
• Bank Data - Supplying this is now mandatory (and its used by HMRC to audit you).
• Fewer Errors - Compliant book-keeping reduces errors, omissions and misdeclarations.
• Fast Updates - HMRC can now respond quicker.
• Accountant Interaction - Is now quarterly for almost everyone.
• Accountant Fees - Will now increase due to the increased workload.
• HMRC Fines - Less likely if you comply, but increased if you fail to adhere to MTD deadlines.
• Year End Procedure - A "Final Declaration" will require to be electronically signed by you, confirming all data submitted to date is correct.

 

MTD Key Dates (Checked 11/2/26)

• From 1 Apr 2019 - All VAT-registered businesses with £85K+ turnover need to file under MTD
• From 1 Apr 2022 - All VAT-registered businesses to file need to file under MTD
• From 6 Apr 2026 - Self-employed & landlords with £50K+ turnover (for 24-25) must MTD file
• From 6 Apr 2027 - Self-employed & landlords with £30K+ turnover (for 25-26) must MTD file
• From 6 Apr 2028 - Self-employed & landlords with £20K+ turnover (for 26-27) must MTD file

Source: HMRC MTD Guide
Thus, if you are under £20K turnover, for now, you don't have to file under MTD. But we can be sure it's coming!

 

Any Tips On Preparing For MTD?

• Don't delay in appointing an accountant!
• Keep all records & paperwork.
• Forward all paperwork to your accountant when requested.
• Try to avoid cash, get clients to pay electronically (it aids record keeping).

 

Why Accountant Fees Now Rise

• Your job is attended to 5x per year.
• Non vat registered will now see the accountant 4x more py.
• Increased job planning, queries etc resulting in extra job time.

 

How Will This Change Tax Bills?

Instead of getting an annual tax bill, you will see a tax bill estimate each time MTD submission is undertaken. However, you need to remember that year end adjustments and capital allowances will still need claimed and so the HMRC estimate can be wildly out. For a more accurate estimate, why not engage me to do the projected tax bill for you?