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HMRC investigations into large companies now yielding £97 for every £1 invested

• HMRC yields from compliance investigations in relation to investment have increased significantly in the last year

• Suggests that more funds will be diverted into increased investigations

HMRC has managed to further boost the high returns it is making from its investments into increased tax investigations says Pinsent Masons, the international law firm.

Data supplied to Pinsent Masons by HMRC shows that the return from investigations into large businesses have jumped to £97 in extra tax for every £1 invested in the last year, up from £87 during the previous year (see data below).

Pinsent Masons says that HMRC’s returns on investment into tax investigations is also up significantly across HMRC’s key high net worth units and local compliance unit (which investigates individual taxpayers and small businesses).

James Bullock, Head of Litigation & Compliance at Pinsent Masons comments: “The kind of returns that HMRC is getting on its increased investments into tax investigations would be seen as mouth-watering by the average private sector business.”

“These numbers suggests that, for the foreseeable future, HMRC will be increasing investment in investigations as quickly as it can hire and train staff.”

“Securing £5.9 billion in extra tax from investigations into large businesses for expenditure on compliance staff of just £61 million means the Chancellor is getting tremendous value from these teams.”

“It also suggests that additional funding for investigation will focus on investigations into medium sized and larger businesses.”

Both the local compliance and high net worth units collected approximately £18 for every £1 invested in 2013/14, up from £16 over 2012/13. This equated to a collection of approximately £8.9 billion from local compliance investigations and £268 million from high net worths in 2013/14.

Both units have witnessed a considerable jump in efficiency over the last four years. In 2009/10, £14 was collected for every £1 spent by the local compliance unit and only £6 gathered for every £1 spent by the high net worth unit.

Pinsent Masons says that whilst increased yields should be viewed positively, HMRC should be cautious that it does not do harm to business.

James Bullock adds: “There is another side to the story – namely that whilst this is good news for HMRC and the Government, the increase in investigations and HMRC activity can lead to increased uncertainty for business – and this is not such good news in terms of making UK plc a business-friendly environment. In particular, it has led to an increased backlog in disputes and appeals which threatens to cause a real problem.” 

Political support from the Treasury needed as tax avoidance clamp down leads to backlog

Pinsent Masons says that that despite this increased efficiency, the growing backlog of tax disputes continues to pose a problem.

HMRC’s clamp-down on suspected tax avoidance pushed the backlog of tax disputes waiting to be heard to a new record high of 27,246 this year.

The total includes a surge in the number of high value disputes joining the queue to be heard by the Upper Tax Tribunals; 267 new Upper Tribunal cases have been lodged in the last year, an increase of 32% on the previous year, and almost four as many as five years ago, when 70 new cases were lodged with the Upper Tribunal.

James Bullock adds: “To achieve a more reasonable time frame for tax cases, HMRC needs to adopt a more pragmatic approach and start negotiating deals.”

“The Treasury has been providing the funding for tax investigations but it now needs to give political support to HMRC in dealing with the backlog.”

“A long wait for a tribunal case to be heard is not as much of an issue for HMRC as it is for a taxpayer that has already had to pay the tax that is in dispute.”

Compliance investigations: investment in relation to revenue (£)

Year

Local compliance

Large Business Service

High net worth

2011/12

1:12

1:76

1:15

2012/13

1:16

1:87

1:16

2013/14

1:18

1:97

1:18

Amount collected from compliance investigations compared to expenditure on compliance staff 2012/13- 2013/14

*Year ending March 31 2014

For further information please contact:

James Bullock, Partner, Head of Litigation & Compliance, +44 (0)207 054 2726

James.bullock@pinsentmasons.com