HMRC’s investment in tax investigations continues to yield healthy returns

HMRC has seen a strong return on its investment in tax investigations over the last year, with spend on its teams targeting ultra-wealthy individuals, large businesses, SMEs and ‘everyday’ taxpayers yielding very healthy amounts.

HMRC now has a number of specialist units, which focus their investigatory work on particular groups of taxpayers, in order to maximize the recovery of unpaid tax.

Three key teams include the High Net Worth Unit, which focuses on individuals with a net worth of £20 million or more, the Large Business Directorate, which monitors the tax compliance of the UK’s 2,100 most sizeable companies and finally, Local Compliance, which covers ‘everyday’ taxpayers and small to mid-sized firms.

Strong returns on the Revenue’s investment in these teams was achieved across the board. The Large Business Directorate collected £73 per £1 spent by HMRC on its work, the High Net Worth Unit gleaned £29 per £1 invested whilst Local Compliance teams gathered £18 per £1 spent.

The results mean that the Revenue is likely to continue to invest heavily in targeted investigatory work. Businesses of all sizes, across all sectors, and individual taxpayers from all walks of life, will consequently continue to face close scrutiny, and should prepare for a full and potentially very costly investigation, should their affairs raise any questions.

The bar for launching an enquiry or investigation is not always set particularly high, which means innocent taxpayers with nothing to hide frequently find themselves under the spotlight. Simple mistakes or discrepancies on a tax return, or even a few unusually high-value purchases or trips abroad could end up raising suspicion. With its new database system, Connect, HMRC can keep a close eye on virtually all aspects of a taxpayer’s financial affairs and spending habits at the touch of a button.

HMRC will take into account any information it can obtain or is provided with- from data gleaned in major leaks, such as that uncovered in the recent Panama papers scandal, to details on what an individual is buying or selling on e-bay. The Revenue can now deal quickly and efficiently with new information, and will be sure to follow up any lead, however vague.

Recent scandals, alongside a related move against tax evasion and white collar crime globally, mean that HMRC is under intense political pressure to stamp out the issue and ensure all are paying their ‘fair share’. Whilst the media focus is often on large multinational corporations or ultra-wealthy individuals stashing money in complex structures offshore, those ‘lower down’ the scale will be in no way immune from the government’s clampdown. Taxpayers across the board will likely see or feel the effects of a low-tolerance approach from HMRC over coming months.

Even if a taxpayer’s affairs are ultimately shown to be entirely legitimate, dealing with any probes from the Revenue will likely be costly.

The increased risks which all of these developments pose to taxpayers mean that many are opting to protect themselves against the cost of tax investigations.