Out-Law News 1 min. read

FTSE 100 increase tax disputes provisions as HMRC pressure increases


The UK's largest companies have substantially increased their provisions for unpaid tax in the wake of more aggressive action by authorities.

Figures compiled by Thomson Reuters showed a 62% increase in the amount of money set aside by FTSE 100 companies, to £2.69 billion in 2016 from £1.66bn the previous year. 

Pharmaceutical companies set aside the most, making provisions of £1.67bn or 64% of the total amount. This was a 21.4% increase from £1.4bn in provisions for this sector in 2015.

This remains a fraction of the amount of tax which HM Revenue & Customs (HMRC) thinks has been underpaid. Last month figures obtained by Pinsent Masons, the law firm behind Out-Law.com, showed that the amount of tax under investigation for suspected underpayment by large businesses rose 13% over the year to 21 March 2017, to £24.8bn.

This figure 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.

Tax disputes expert Jason Collins of Pinsent Masons said the increase in big businesses' provisions, which are set aside to pay disputed tax, was a direct response to the focus by HMRC and tax authorities in other countries on tax evasion in recent years.

"The increase in both the amount of ‘tax under consideration’ and the provisions made by large businesses in respect of uncertain tax positions is no surprise. This isn’t just about corporates seeking to avoid tax more than they used to; in fact they're much more conscious now of the need to be compliant,” Collins said. 

“Many of the disputes are arising because HMRC is pushing the envelope as far as it can justify. It's interpreting existing legislation expansively to catch more activity than most corporates had understood should be caught,” Collins said.

Collins said clients were facing an increasing number of multi-million pound enquiries where HMRC wanted to test new positions in law.   

“Corporates need to ensure a multi-faceted response. As litigation looks more likely, tax and finance teams are collaborating more with the general counsel to ensure that the potential dispute is handled effectively,” Collins said.

Recent figures compiled by Pinsent Masons showed the amount of diverted profits tax (DPT) raised by HMRC reached £281 million in 2016/17, up from £31m in the previous year and higher than the £275m yield anticipated by HMRC before the tax was introduced in 2015. However, the length of time taken by HMRC to settle transfer pricing disputes, including DPT-related disputes, has continued to increase, with disputes now taking two and a half years to settle.

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