HMRC pulls in extra £10bn from large business tax probes

HMRC has collected almost £10bn in additional tax as a result of investigations into the UK’s biggest companies, with £6bn coming from VAT payments and £2.6bn in underpaid corporation tax, according to research by Pinsent Masons

The law firm says the extra revenue raised through tax investigations into the UK’s 2,000 largest businesses rose by 12% last year, to hit £9.8bn. The sharp increase was driven in part by HMRC’s focus on the underpayment of tax by major technology and financial services businesses.

Pinsent Masons says that VAT has been a particular area of focus for HMRC recently. Money generated from VAT investigations now makes up more than half (61%) of HMRC’s total take from investigations into large businesses, compared to 41% last year.

The firm highlights reports that HMRC is currently investigating one of the biggest gig economy businesses with £1bn in disputed VAT payments at stake for an app-based provider, and says financial services businesses are also in the spotlight, as some of their activities are not covered by the normal exemption from VAT for financial service. For example, M&A advice, portfolio management and some investment advice and research are taxable. As of April, VAT exemption rules were changed such that insurers were no longer permitted to treat pension fund management services as exempt.

Some large businesses are also facing challenges over ‘place of supply’ issues, where HMRC believes a business has incorrectly identified where a service was supplied, and therefore may not have paid the correct VAT due. For example, if a business wrongly reported their services were supplied outside the UK when actually it was supplied in the UK then that would create a VAT shortfall, the firm says.

Stuart Walsh, partner at Pinsent Masons, said: ‘Bigger UK and foreign businesses are going to find themselves under continued scrutiny from HMRC over the next year.

‘The new government’s spending pledges mean HMRC and the Treasury will be under pressure to raise more money. The view is that big businesses are not being put off investing in the UK because of the tax environment so that gives HMRC scope to continue to push very hard wherever it sees the possibility of underpaid tax.’

Walsh warned that VAT payments are likely to remain a flashpoint, given the record level of VAT that HMRC believes it was underpaid last year.  Pinsent Mason points to HMRC estimates which suggest that 9.1% (£12.5bn) of all VAT due is unpaid – up from 8.5% and 7.4% the two previous years.

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