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HMRC investigations average almost three years

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The average length of an HMRC tax enquiry rose to 34 months during 2016/17, up from 31 months in 2015/16, according to figures seen by Pinsent Masons.

Ian Hyde, partner at Pinsent Masons, suggests the increase could be explained by HMRC’s approach under its litigation and settlement strategy for ‘securing the best practicable return for the Exchequer’, which encourages investigators not to settle outside of court for anything less than HMRC thinks it is owed. ‘Cases are therefore being fought to the end despite growing costs on both sides’, Hyde commented.

Hyde believes individual officers are so concerned not seen to be ‘doing deals’ with large corporates, that HMRC ‘is digging its heels in and not backing down, even when there is a sensible settlement to be reached’.

As a result, businesses must devote a growing amount of time and resources to handling the enquiries, exposing them to financial and legal uncertainty.

HMRC’s increasing focus on complex transfer pricing arrangements and diverted profits tax compliance may also be a factor behind the length of time taken to conclude investigations, Hyde said.

HMRC’s large business directorate has estimated ‘tax under consideration’, the amount it expects big businesses to underpay in 2016/17, at £24.8bn.