HMRC tax investigations – the yield dichotomy?

HMRC tax investigations – the yield dichotomy?

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A recent report has concluded that yields against expenditure on HMRC investigatory staff have fallen by up to 17% in the last tax year.

The report relates to the work of HMRC’s Large Business Directorate, which was set up in April 2014 to oversee the tax affairs of the UK’s 2,100 largest and more complex businesses. Additionally, the report covers the work of two new teams set up by HMRC last year to replace the Local Compliance team; the ‘individuals and small businesses’ unit and the ‘wealthy and mid-sized businesses’ unit.

Investigations by HMRC into large businesses yielded £66 in extra tax for every £1 spent on investigatory staff in the tax year 2016/17, down from £73 per £1 spent in 2014/15. With a similar picture also emerging for individuals, small businesses and mid-sized businesses which fell from £18 per £1 spent to £15 per £1 spent over the same period.

It is believed that falling returns could be attributed to HM Revenue and Customs (HMRC) moving on from initial ‘easy to win’ cases and could signify a change of policy as more complex tax disputes involving large businesses often take longer to solve, with a knock-on impact on yield per £1 spent.

This comes against the backdrop of the Government announcement that it plans to spend a further £1.8 billion on HMRC over the next few years in order to increase additional tax take through investigations and HMRC’s stated intention to increase the number of criminal prosecutions for wealthy individuals and corporates..

The apparent dichotomy of falling yields with a stated objective of a higher tax take may lead HMRC to increase investigatory activity and allocate increased resources to more complex cases, leading inevitably to more conflict with large and medium-sized businesses.

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