HMRC suspects large companies of underpaying £35.8billion in tax last year (2020/21 March 31st year end) – a jump of £1billion from the previous year.* This is the sixth year in a row this figure has climbed.
With the scale of the issue continuing to grow, HMRC will want to ensure that it is increasing its use of investigations to recoup any tax that has not been paid.
Throughout the last two years HMRC, like most organisations, has had to adapt to changing working conditions due to the pandemic. Repeated lockdowns meant that HMRC had to pause its in-person investigations for an extended period.
A backlog of investigations also built up during the lockdowns as investigations staff were temporarily reassigned to help manage the massive undertaking of the furlough scheme.
Of the £35.8bn HMRC suspects large companies owe, £1bn was in relation to employment issues – an area of particular interest to HMRC. Another £2.7bn was believed to have come from unpaid VAT.
The banking sector was suspected of underpaying £8.4bn in tax (the most of any sector). The pharmaceutical and healthcare sector was thought to have underpaid £4.7bn and the retail sector £3.5bn.
However it is not just big businesses that HMRC suspects of avoiding tax, HMRC has also been targeting small businesses. HMRC clawed back £144m in underpaid corporation tax and £773m in unpaid VAT from small businesses last year.***
With most lockdown restrictions currently not in place HMRC will be hoping to work through the investigations that they were unable to progress due to lockdown measures – Omicron permitting.
Businesses with lower tax calculations than HMRC expects will now be subject to intense scrutiny. If a business is unable to send documentation to HMRC when requested, HMRC can use its legal powers to forcibly inspect records and search the business.
Tax investigations like these can tie up senior management time and can bring the everyday running of a business to a standstill. Businesses can also face significant costs through the investigation process and if they do not have insurance, may be liable to substantial fees.
Specialist tax insurance protects businesses against these costs. It allows business owners to have peace of mind and provides their businesses with financial support if investigations disrupt their operations.
Businesses who have access to specialist tax insurance can also rely on experts to help them navigate any changes in tax policy that may affect them.
Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect your clients against the cost of most tax investigations by offering a Tax Investigation Service. To find out more contact us.