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Pinsent Masons: investigations into large businesses bringing in 6800% return on HMRC staff cost investment

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– HMRC likely to continue to target large businesses

– Even the most difficult fraud cases can provide 1,500% return on investment for HMRC

Multinational law firm Pinsent Masons says that tax investigations into large businesses have been HMRC’s most efficient money-raiser over the past year, with £69 in extra tax brought in for every pound spent on staff costs for those investigations.

According to Pinsent Masons, investigations into large businesses brought in an extra £8.6 billion in tax last year*, while HMRC’s Large Business Directorate, the team responsible for investigating the tax affairs of the UK’s 2,000 biggest and most complex businesses, had a staff bill of ‘just’ £125 million.

Investigations by the Large Business Directorate are more than twice as efficient as those conducted by any other HMRC investigation team, such as the those investigating individuals and small businesses (see table below).

HMRC is keenly focused on investigating tax it believes is underpaid by the biggest businesses. Income from the investigations into those 2,000 biggest businesses accounted for 28% of all HMRC’s tax investigations yield last year. HMRC believes that £35.8bn of tax may have been underpaid by big businesses over the same period**.

Steven Porter, Partner at Pinsent Masons, says that the enormous return on investment in large business investigations means HMRC is likely to continue targeting them in 2022 and beyond. Porter says HMRC is likely to seek to increase extra tax yield from big businesses and help to plug the gap in the public finances caused by the outlay on schemes such as furlough.

Steven Porter comments: “If investigations into big businesses continue to provide a 6,800% return on investment, HMRC is going to put more and more resource and focus on how the largest businesses manage their tax affairs.”

“HMRC has now built up a very strong investigations infrastructure with a team of experienced and talented staff. Expect them to be set the challenge of increasing tax investigations revenues over the next five years.”

“The success of HMRC’s compliance work in recent years should act as a real warning that it is not going to let up in rooting out underpaid tax. That goes for large corporates suspected of artificially shifting profits offshore, as well as the lower-level evasion and fraud.”

Pinsent Masons points out that while some HMRC directorates are less efficient in recovering underpaid tax than the Large Business Directorate, all provide a considerable return on investment for the Treasury.

For example, the Fraud Investigation Service, HMRC’s specialist ‘fraud squad’, tasked with dealing with the most complex financial crimes, brought in £15 per pound spent on staffing in 2020/21. That was despite some of its work being focused on criminal rather than civil fraud, meaning its investigations may end in prison sentences rather than financial penalties.

Adds Andrew Sackey, Partner at Pinsent Masons: “The Fraud Investigation Service was created in 2016 and deals with some of the most difficult investigations work at HMRC, and still it manages to return 15 times what HMRC spends on staffing it. It’s been a real success story for HMRC in challenging some of the most persistent and complex tax evasion scams in the UK over the past five years.”

* Year end March 31 2021

** Tax under consideration – the measure of the maximum potential additional tax liability in an investigation before HMRC has completed it

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