HMRC collects an extra £3.5 billion from corporation tax

HMRC’s specialist unit targeting the UK’s largest businesses collected an additional £3.5 billion through investigations into underpaid corporation tax in the last year*, a fall of 13% on the previous year, despite a substantial increase in the number of companies covered, according to Pinsent Masons, the international law firm.

Pinsent Masons say that the fall in yield means HMRC may have tackled much of the most obvious abuse amongst large businesses over the last few years, leaving them to clamp down on more complex cases, which may take longer to resolve, and yield lower amounts.

Pinsent Masons explains that the extra tax paid relates to enquiries undertaken by HMRC’s Large Business Directorate. This was formed in April 2014 to manage the tax compliance of the UK’s 2,100 largest and most complex businesses, replacing the Large Business Service, which covered only the 800 largest and most complex businesses.

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Pinsent Masons says that although HMRC’s dedicated unit for larger businesses is now covering more companies, the amount of additional corporation tax generated by its work is falling. In 2013/14, the Large Business Service collected around £4 billion in additional tax.

Heather Self, Partner at Pinsent Masons, comments:

The fall in the amount of additional tax collected could indicate that HMRC has now tackled much of the “low hanging fruit”.  It may now be trying to squeeze blood out of a stone.

“The fact that the rate of corporation tax has been falling will also, of course, be having an impact on overall yield.”

Pinsent Masons highlights that the amount of corporation tax ‘under consideration’ for enquiries by the Large Business Service (HMRC’s initial estimate of the maximum potential additional tax liability in each case before full investigation) was recorded at approximately £10 billion at the end of 2013/14. The £3.5 billion additional tax collected by the Directorate over 2014/15 represents approximately 35% of this figure.

Heather Self comments: “The actual yield from Large Business Directorate enquiries is far lower than the amount that HMRC estimated it might be able to bring in. This suggests that although the Revenue wins a high proportion of cases at tribunal, there are still many technical disputes in which the taxpayer prevails.

“The gap between the amount ‘under consideration’ and the eventual sum yielded could also, of course, reflect the fact that disputes are taking a long time to resolve and the revenue, therefore, a longer time to come through.”

Government takes steps to improve tax compliance of largest businesses

Pinsent Masons explains that the government has taken several steps in recent months to improve the tax compliance of the UK’s largest businesses.

In the 2015 Summer Budget, the government announced a consultation on measures to improve large businesses’ tax compliance, focused on ‘behavioural change’.

Potential new measures announced included plans to force all large companies to publish the details of their tax strategy, including their appetite for tax planning and their approach to dealings with HMRC.

A ‘Voluntary Code of Practice’ on taxation for large businesses was also proposed. This would be a "common set of principles to encourage all businesses to adopt the most positive tax compliance behaviours, and which businesses themselves can use to promote exemplary behaviours across their organisation".

The consultation ran from 22 July to 14 October and the Revenue is currently analysing feedback.

*2014-15, year end March 31

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