HMRC additional corporation tax take falls, but big businesses still rich source of revenue, says expert

The figures, which refer to the yield from investigations conducted by HMRC's Large Business Directorate, show that these companies remain a rich source of extra revenue for the department, according to tax expert Heather Self of Pinsent Masons. The decrease was likely to be driven by the falling corporation tax rate, as well as increased compliance efforts from big businesses, Self said.

The amount of 'tax under consideration' by the Large Business Directorate increased by 60% over the same period, to £3.8bn, according to figures compiled by Pinsent Masons late last year. Taken together, the figures could indicate HMRC's increased focus on more complex disputes that take longer to resolve, such as those involving transfer pricing, Self said.

"The fall in additional revenue could be an indication of a 'lower risk' approach to tax planning amongst large corporates over recent years," she said. "Intense media scrutiny and high-profile clamp downs by HMRC have pushed aggressive avoidance strategies off the agenda for many large businesses."

"We are seeing HMRC taking a more aggressive stance in relation to commercial transactions which were once seen as routine planning. The issues tend to be less clear cut, which can make them more difficult for HMRC to tackle. 'Transfer pricing' disputes are complex and typically take a long time to resolve. However, over the next few years we are likely to see some of the tax currently under consideration in relation to transfer pricing feeding through into the 'tax collected' statistics," she said.

'Tax under consideration' is an estimate of the maximum potential additional tax liability across all open tax enquiries, but before any investigations have been completed. The Large Business Directorate is the specialist team within HMRC which scrutinises the tax affairs of the UK's 2,100 largest and most complex businesses.

Transfer pricing rules are designed to ensure that transactions made between connected parties, such as different entities within the same corporate group, are taxed in the same way that they would have been had that connection not existed. Setting an appropriate transfer price is a difficult exercise in complex transactions, so disputes are common, according to Self.

Much of the work currently being undertaken by the global Organisation for Economic Cooperation and Development (OECD) on base erosion and profit shifting involves examining current transfer pricing arrangements. The UK government is "keen to be seen to be leading the way" in the fight against tax avoidance by multinationals, and has been implementing OECD proposals sooner than most signatory countries, Self said.

"HMRC and the Treasury are therefore likely to be under pressure to show that they are taking a tough line with big corporates," she said.

"It appears that HMRC is getting bolder at challenging the amount of profit of multinationals which should be allocated to UK economic activities. This is likely to result in higher corporation tax compliance yields in the future," she said.