Large businesses are HMRC’s best target for tax investigations, with every pound spent on investigating them yielding £56 in extra tax last year*, says Pinsent Masons, the multinational law firm.
The yield per pound spent on investigations into large businesses is much higher than for any other type of investigation HMRC undertakes (see table below).
Steven Porter, Partner and Head of Tax Disputes and Investigations, says that the success of HMRC’s compliance work on large businesses means it they are likely to continue to bear the brunt of HMRC investigations.
The tax authority believes there may still be a considerable amount of tax going unpaid by Britain’s biggest businesses. The ‘tax gap’ – the difference between the amount of tax paid and the amount HMRC believes it should have been paid – for large businesses last year stood at £3.6bn**.
Says Steven Porter: “With HMRC seeing such an enormous rate of return from investigating the biggest businesses, they can expect to continue to have to deal with HMRC’s compliance teams.”
“It’s far more efficient for HMRC to get extra tax from a small number of large businesses than it is to get it from a huge number of individuals.”
Growing success of small business investigations likely to trigger more probes of SMEs
HMRC has seen growing success in its investigations into individuals and small businesses, with the amount it collects in extra tax it makes per pound spent on those investigations into small businesses and individuals rising from £11 in 2020/21 to £16 in 2021/22.
Steven Porter says that SMEs can expect to see HMRC start more investigations this year as it seeks to shrink the £15.bn small business tax gap. HMRC believes small businesses make up 48% of the UK’s entire £32bn tax gap**.
HMRC’s use of data has become markedly more effective in recent years, allowing it to target its investigations on the highest-risk taxpayers. Its AI systems are now able to analyse data from a vast range of sources, such as overseas tax authorities, banks, online retail platforms and the Land Registry and highlight the taxpayers that are most likely to have underpaid tax.
Steven Porter says that the growing efficiency of investigations into small businesses means that they too can expect to face an increasing number of HMRC probes.
Steven Porter: “HMRC will continue to push where it believes there’s unpaid tax to be had – small businesses can expect to face a lot more investigations.”
“It’s become more effective at using all the tool at its disposal to target businesses that have underpaid significant amounts of tax. AI systems, big data, social media analysis, information from estate agents, paying informants, dawn raids – all of these and more can provide leads for investigations.”
“Any business that has underpaid tax needs to get out ahead of the problem and take professional advice before engaging with HMRC. The worst outcome for a business is for HMRC to discover unpaid tax through an investigation. The penalties can be very substantial.”