Pinsent Masons | HMRC’s open tax investigations into big businesses have been in progress for over 3 years on average

HM Revenue & Customs’s open tax investigations into the UK’s largest businesses have been going on for 41 months on average or nearly three and a half years, according to a study by multinational law firm Pinsent Masons.

Jake Landman, Partner and Head of Tax Disputes at Pinsent Masons, said that the number of active investigations being run by HMRC’s Large Business Directorate had risen from 2,031 to 2,149* last year. Large businesses account for 40% of all taxes collected by HMRC.

He said that the increase in the number of investigations is due to HMRC’s increased efforts to close the £47 billion tax gap and to the length of time it takes to complete investigations. HMRC’s crackdown on non-compliance had resulted in its LBD opening 1,879 cases, an increase of 21.1% or 327.

Landman said that with businesses already struggling to deal with a weak economy, having lengthy HMRC tax investigations hanging over them for years at a time is an unwelcome and costly distraction.

“Having businesses’ tax affairs under investigation for three, four, five years runs counter to attempts to make the UK a more business friendly environment. It just adds unnecessary burdens to businesses, at a time when the confidence is already fragile,” he said.

HMRC’s LBD unit focusses on the nation’s 2,000 biggest businesses, those with revenues of £200 million plus. Given that around half of them are being investigated at any one time by the LBD, Landman said the number of open cases indicates that each of those large businesses is likely facing multiple tax investigations.

He added that HMRC is making a concerted effort to resolve its backlog of investigations. He pointed out that the LBD closed 1,761 cases last year, compared to 1,617 the year before: “People do need to give HMRC credit for HMRC reducing the amount of time it takes to complete investigations – in the previous year it was 45 months on average, four months longer than now.”

He added that while HMRC is working to close cases faster, it needs more help and resources from the Government to do so, as some investigations into large businesses have been open for over four years.

Parliament’s Public Accounts Committee is conducting an inquiry into tax compliance by large businesses. In its call for evidence, which closes on March 5, the PAC focussed on HMRC’s approach to taxing big businesses and what the HMRC is doing to ensure compliance by large multinationals.

*For the 12 month period ending March 31