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HMRC raises £3.5bn from challenging large businesses on corporation tax payments

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Law firm Pinsent Masons reports that HMRC’s large business directorate (LBD) – its specialist unit formed in April 2014 to target the UK’s 2,100 largest and most complex businesses – collected an additional £3.5bn through investigations into underpaid corporation tax in the last year. This is a fall of 13% on the previous year, despite a substantial increase in the number of companies targeted. Pinsent Masons suggested that the fall in yield meant HMRC may have tackled much of the most obvious abuse amongst large businesses over the last few years, leaving it to clamp down on more complex cases, which may take longer to resolve and yield lower amounts.

The extra tax paid relates to enquiries undertaken by the LBD, which replaced HMRC’s large business service (LBS) that covered only the 800 largest and most complex businesses. However, the amount of additional corporation tax generated by this work is falling: in 2013/14, the LBS collected around £4bn in additional tax; and the amount of corporation tax ‘under consideration’ for enquiries by the LBS (HMRC’s initial estimate of the maximum potential additional tax liability in each case before full investigation) was recorded at approximately £10bn at the end of 2013/14. Heather Self, partner at Pinsent Masons, said: ‘The fall in the amount of additional tax collected could indicate that HMRC has now tackled much of the “low hanging fruit”. It may now be trying to squeeze blood out of a stone. The fact that the rate of corporation tax has been falling will also, of course, be having an impact on overall yield.

‘The actual yield from LBD enquiries is far lower than the amount that HMRC estimated it might be able to bring in. This suggests that although HMRC wins a high proportion of cases at tribunal, there are still many technical disputes in which the taxpayer prevails. The gap between the amount “under consideration” and the eventual sum yielded could also, of course, reflect the fact that disputes are taking a long time to resolve and the revenue, therefore, a longer time to come through.’

In a statement, HMRC said: ‘Our yield from individual taxes naturally fluctuates from year to year, as a relatively small number of cases is responsible for a large proportion of the additional tax. HMRC allocates resources according to risk and this has seen us focus on VAT with large business in recent years. The LBD brought in around £3.4bn in extra VAT last year, more than double the amount collected by the former large business service in 2013/14.’

Issue: 1287
Categories: News