HMRC data shows surge in VAT investigations

The number of VAT investigations launched by HMRC into large and medium sized businesses jumped 31% in the 2024-25 financial year as HM Revenue and Customs (HMRC) identified a two-billion-pound increase in potentially underpaid VAT.

The total number of VAT probes by HMRC rose 6.3% last year from 103,790 to 110,300, according to HMRC data obtained through a freedom of information request by international law firm Pinsent Masons.

However, most strikingly the data revealed that investigations into large and medium-sized businesses yielded £5.3 billion in extra tax for HMRC – or £8.6million per case – last year as the tax authority grappled to recover the estimated £11.4bn in potentially unpaid VAT.

The findings come almost a year since the UK government announced in its 2025 spring statement that it was investing considerably in HMRC’s counter-fraud and debt management capabilities to help tackle rising tax fraud.

Bryn Reynolds, a VAT expert at Pinsent Masons, said the data confirms HMRC’s intensified efforts to recover unpaid VAT from mid-sized and large companies. “The amount of extra resource that HMRC has been given to undertake these tax investigations by the chancellor has been really striking,” he said. “That has led to almost one in three large companies having a VAT investigation opened into them in the last year alone.” 

HMRC’s estimates are that around 85% of potentially underpaid VAT by large businesses resulted from corporates either interpreting the VAT rules differently from HMRC or testing the boundaries of VAT rules. HMRC attributes the remaining 15% of unpaid VAT to businesses making errors over the VAT they owe.

In total, last year HMRC opened 110,300 and closed a further 98,390 investigations, highlighting the sheer volume of cases overseen by the tax authority over just a 12-month period.

However, Reynolds warned that HMRC would need considerable resources to undertake this number or more probes each year, particularly those investigations that are more complex, lengthy and often more costly. “What’s also noticeable is that the number of VAT investigations being opened last year exceeded the number closed by around 12,000 cases,” he said. “This could suggest that HMRC is now acting at the limits of its resources. If that’s the case then investigations are going to stretch out for longer periods, creating more uncertainty for businesses.”