HMRC's 'big data' system, Connect, has brought in £4.6bn of additional tax in the 2024-25 tax year that would otherwise have been uncollected. The increase of 35% above the estimated average annual amount collected comes from the tax gap, says international law firm Pinsent Masons, following a Freedom of Information (FOI) request.
Ian Robotham, Legal Director at Pinsent Masons, says: “HMRC has spent time building up the amount of data sources that it can access and analyse... The algorithms that it uses allow HMRC to spot anomalies that would otherwise go unnoticed by the human eye.”
- HMRC’s Connect system tracks dozens of data sources to detect undeclared tax.
- Connect enabled 540,000 cases in the last year.
- HMRC have confirmed their partnership with Palantir to extend its big data and Artificial Intelligence (AI) usage in tax investigations.
- HMRC uses AI to monitor social media posts as part of criminal investigations into suspected tax evaders.
Connect is the key data-networking, analytical and risk tool that uses big data to manage compliance risk. It was introduced in 2010 after being developed with BAE Systems.
HMRC have remained tight-lipped about the sources the system uses for data collection, but a letter to a House of Commons committee in 2020 revealed, "It identifies 'hidden' relationships between people, organisations and data that could not previously be identified. Connect has the capacity to highlight patterns in HMRC’s rich reserves of taxpayer and third-party data, allowing HMRC to find anomalies between such things as bank interest, property income and other lifestyle indicators."
According to Pinsent Masons, Connect cross-references data from a range of sources: banks, online marketplaces, social media accounts such as Instagram, databases of property letting agents etc, against tax returns.
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Small businesses account for 60% of missing taxes
HMRC have published 'Measuring Tax Gaps 2025', which says that small businesses failed to pay 40% of the corporation taxes that they owed in 2023-24. Overall, the tax gap estimate (the difference between what tax is expected to be paid and actually paid) was 5.3% for 2023-24.
Ignorance of tax rules bolsters the tax gap
HMRC have published their annual estimates of the 'tax gap'. Ignorance of tax law, as in 'failure to take reasonable care' by small businesses, is blamed for a large percentage of the tax gap primarily through a lack of Income Tax and Corporation Tax receipts.
External links
HMRC: Measuring tax gaps 2025 edition: tax gap estimates for 2023 to 2024
Pinsent Masons law firm