HMRC ramps up tax yield from big business investigations by 17%

HMRC is raking up its biggest successes and highest yields from investigations into tax compliance by large businesses, which produced £77 for every £1 spent last year, with an estimated £24.8bn recovered

The analysis by law firm Pinsent Mason says this marks the second year running that HMRC’s large business directorate (LBD) has pulled in the highest amount compared to other HMRC units charged with compliance work.

Additional tax yielded from investigations into the largest businesses increased by 17% last year, from £66 per £1 spent in 2015/16, according to it figures. The amount of additional tax collected by the counter avoidance directorate also increased over the same period, from £40 per £1 invested to £46 per £1 invested. However the amount collected by the fraud investigation service (FIS) fell, from £30 per £1 invested to £13 into every £1 invested.

Pinsent Masons says HMRC’s large business directorate figures were likely driven by diverted profits tax, which requires businesses with tax in dispute to pay upfront.

By contrast, reduced returns on costs at HMRC’s fraud investigation service may reflect how the directorate has dealt with most of its straightforward cases and is now focusing on the more complex ones, which take up more staff time.

Steve Porter, partner with Pinsent Masons, said: ‘It is perhaps surprising that the large business and counter avoidance directorates saw increased returns yet again, given that yields were already inflated by the successful issuance of advanced payment notices (APNs) the year before.

‘HMRC seems to have had another bumper year, this time likely driven by diverted profit tax. The fraud investigation service clearly doesn’t have access to the same tool box and the comparatively easy cash that APNs [accelerated payment notices] and diverted profit tax represent to other directorates.’

The amount of ‘tax under consideration’ for suspected underpayment by the HMRC’s large business directorate rose 13% last year, to £24.8bn, according to figures obtained previously by Pinsent Masons. The amount actually due once investigation of individual cases is complete tends to be around half of that amount.

Porter said: ‘What HMRC labels as tax avoidance is beginning to run out. As a result, in order to generate similar yields as it has previously, HMRC is now going after what used to be considered uncontroversial tax positions.

‘HMRC is increasingly looking beyond “easy wins” and traditional focuses of investigations.’

Accountancy Daily