Total compliance take marginally misses target at £50.2billion – growth in yields from tax investigations slows. Representatives from Pinsent Masons have commented on HMRC’s Annual Report and Accounts (out today).
Ian Robotham, Partner in the Contentious Tax team, said: “AI and other data analytics are now making a major contribution to HMRC’s tax investigation work. According to HMRC, AI and big data helped HMRC protect and recover £10 billion in extra tax in the last year.”
“HMRC’s Connect system has built up a trove of valuable data and they are now able to deploy AI more to produce a target list of businesses and individuals to investigate.”
“It is another record year for total yields from investigations. However, HMRC’s increase in the amount of tax they protect through compliance work has been slowing.”
“HMRC marginally missed their target for total yield from compliance work of £50.4billion to achieve £50.2billion. That is a 4.6% increase over the last year compared to a 15% increase last year and 23% increase in the year before.”
“HMRC is hoping that an addition of 5,500 new compliance officers will bring in an additional £7.5billion in extra tax per year by 2029-30.”
“Business leaders will be keen for HMRC’s drive to increase its tax investigations’ yield to avoid creating additional frictions for their finance teams.”
“Today’s data also highlights the importance of HMRC’s Large Business unit. Compliance yields from corporation tax investigations into large business and VAT investigations into large businesses (at £6.45billion and £4.59billion respectively) are still by far the biggest and most successful elements of HMRC tax investigations work.”
“HMRC have pointed out that when they identify underpaid tax from large companies they are much more likely to receive that money.”
Unpaid tax debts (those in arrears) have edged up from £44billion last year to £44.7billion this year.
Ian Robotham says that debt collection is major area of investment for HMRC.
Penny Simmons, Legal Director in the Tax Advisory team said: “It is particularly interesting to note the shift in focus in the sectors being targeted within the large business unit over the last year.
“The tax under consideration, which guides HMRC’s focus of attention in terms of future investigations, highlights a doubling of tax risks in the Automotive and Construction sectors since last year; and construction industry scheme tax risk has been identified as a specific risk this year.”
“HMRC has been very public about its campaign against non-tax compliance across the construction sector. New rules targeting CIS fraud were introduced from April. New rules targeting tax avoidance by umbrella companies will also be relevant here. The construction sector relies heavily on temporary workers, and large construction businesses tend to engage workers through recruitment agencies and umbrella companies.
“These statistics should alert businesses across the construction sector that it is more important than ever to ensure they have robust procedures in place to prevent non-tax compliance across their labour supply chains and ensure that temporary workers are taxed correctly, and where they are not directly responsible for taxing workers themselves to ensure they have robust contractual safeguards in place in the event that HMRC seeks to pass the tax burden directly onto them.”
