HMRC to intensify scrutiny of large businesses after government backs PAC tax compliance reforms

Jake Landman and Ian Robotham of Pinsent Masons were commenting following the government's response to recommendations made by the Public Accounts Committee (PAC) on large business tax compliance.

The government accepted all seven recommendations made by the committee, committing HMRC to review its use of enforcement powers, accelerate compliance activity through greater use of technology and data analytics, and assess whether elements of its co-operative compliance approach should be extended beyond the UK's largest taxpayers.

The PAC's report followed concerns that, while HMRC's cooperative compliance model for large businesses has generally delivered strong levels of compliance, challenges remain around lengthy enquiries, the effectiveness of certain enforcement tools and transparency in the handling of complex disputes.

The response highlights HMRC's intention to reduce the length of enquiries through a range of operational measures. These include the introduction of Digital Action Plans for all large business enquiries, increased use of formal information powers and greater use of alternative dispute resolution mechanisms.

Robotham said: "The introduction of Digital Action Plans for all large business enquiries is operationally significant. The explicit reference to using information powers to accelerate enquiries signals a more assertive approach where voluntary cooperation is not forthcoming."

He added: "The AI-assisted data analysis capability will accelerate HMRC's ability to identify inconsistencies within large document sets. This should help HMRC progress enquiries more quickly and identify issues that might previously have taken significant manual resource to uncover."

The government's response further indicates that HMRC will test whether elements of its cooperative compliance model can be applied to businesses outside the current large business regime.

"Another noteworthy aspect of the response is HMRC's agreement to review the operation of the special measures regime," said Landman.

He said: "Businesses should treat HMRC's reconsideration of these provisions as a live risk, particularly those with a consistently negative relationship with HMRC and those who have sought to conceal information or obstruct HMRC in their investigations. The PAC's criticism of HMRC's passivity increases the political pressure to demonstrate willingness to use those powers."

The committee had expressed concern that HMRC has never formally placed a large business into special measures since the regime was introduced in 2016. The framework is designed to apply enhanced oversight and governance measures where a business is judged not to be cooperating with HMRC.

The government has now committed HMRC to reviewing why the powers have not been used and whether the threshold for triggering special measures remains appropriate.

The government has also committed to providing further information on progress under HMRC's £1.6 billion transformation programme, which is intended to improve risk identification, analytics capabilities, case management and other elements of the department's compliance functions.

Among the more immediate changes, HMRC confirmed plans to digitise the Senior Accounting Officer reporting process during 2026-27.

Robotham said: "The digitisation of the SAO process is an immediate, concrete change. However, it appears to be largely administrative rather than a fundamental change in approach."

The PAC had also called for greater transparency over large business tax settlements. While HMRC accepted that recommendation, it reiterated that taxpayer confidentiality obligations restrict the extent to which information about individual settlements can be disclosed.

Landman said: "Taxpayers should be reassured that the statutory confidentiality requirements mean individual settlements will remain confidential. HMRC may seek to publish sector-level or issue-level commentary on compliance trends, which may in turn serve as an indirect signal of HMRC's compliance focus areas. However, given the length of time between opening and enquiry and settling it, publication is likely to be of mainly historical relevance."

Another area identified by the PAC relates to the implementation of the OECD's Pillar Two global minimum tax rules. HMRC has agreed to analyse data collected through early Pillar Two filings and report on what those returns reveal about international tax risks.

Landman said: "Businesses should anticipate risk-based enquiries flowing from the data HMRC extracts from Pillar Two returns. These returns will create a new intelligence resource that HMRC will use to cross-reference against existing data and identify new risks."