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Big businesses under increasing scrutiny from HMRC as tax pressures increase

The amount of tax under investigation for suspected underpayment by big businesses increased substantially last year, as HM Revenue and Customs (HMRC) came under increasing pressure to get results.31 Aug 2017

'Tax under consideration' by HMRC's Large Business Directorate rose 13% over the year to 21 March 2017, to £24.8 billion, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. The figure is 31% higher than the amount queried just two years previously, which was just under £19bn.

Tax expert Heather Self of Pinsent Masons said that the steady increase showed HMRC was "broadening its horizons and putting a far wider range of transactions under scrutiny".

"We are seeing an increasing number of challenges to arrangements that would previously have been regarded as routine and perfectly acceptable," Self said.

"The UK Treasury faces an unenviable choice - either cut public expenditure and services, or squeeze taxpayers for more money. Increasing tax revenue through investigations is often the more politically palatable option, particularly when the focus is on large businesses. However, HMRC is putting the affairs of more and more companies under the microscope as a result, increasing the costs for those businesses," she said.

'Tax under consideration' is HMRC's estimate of the maximum potential additional tax that could be collected across all open tax enquiries before any investigations have taken place. Typically, the amount actually due once investigation of individual cases is complete tends to be around half of this amount.

The Large Business Directorate is the specialist team within HMRC which scrutinises the tax affairs of over 2,000 of the UK's largest and most complex businesses.

HMRC has been coming under increasing pressure from the Treasury in recent years to improve its compliance take. UK chancellor of the exchequer Philip Hammond announced in November that the government was aiming to raise an additional £2bn by 2022 from targeting tax avoidance. At the same time, public backlash against tax avoidance by multinationals has prompted new legislation, including a renewed focus on transfer pricing arrangements and the new tax strategy publication requirement which came into force last year.

At the same time, Self said that many businesses were struggling with HMRC's customer relationship manager (CRM) system, making it "more difficult to get uncertainties resolved in real time. CRMs are appointed by HMRC to manage its relationships with the largest businesses across all taxes and duties, via a system based on mutual trust, transparency and resolving issues as quickly as possible.