Large companies potentially underpaid £24.8bn in tax in the year to March, according to an assessment by HM Revenue & Customs, a rise of 14 per cent from the year before.
The latest total — a snapshot of investigatory work in progress — is 31 per cent higher the sum from two years earlier. The figures show HMRC has continued to ramp up its inquiries as it comes under pressure from the Treasury to collect more revenue from business.
Heather Self, Partner at Pinsent Masons, the law firm, said: “Another £3bn rise in the tax HMRC is querying shows that HMRC is broadening its horizons and putting a far wider range of transactions under scrutiny.
“We are seeing an increasing number of challenges to arrangements that would previously have been regarded as routine and perfectly acceptable.”
The heightened scrutiny of multinationals’ tax affairs is partly a response to a public backlash against tax avoidance. It is also likely to reflect new legislation — the so-called “Google tax” — introduced to stop companies diverting profits overseas.
The Treasury wants HMRC to improve its compliance take. For example, Philip Hammond, the chancellor, announced in November that the government aimed to raise an extra £2bn by 2022 by targeting tax avoidance.
It also follows the introduction of tighter rules recommended by the Paris-based Organisation for Economic Co-operation and Development, which concluded that governments were losing between 4-10 per cent — between $100bn-$240bn — of corporate tax revenues every year.
In an effort to clamp down further, the government is requiring big companies to publish their tax strategy, which will set out their approach to tax planning and their relationship with HMRC.
At any one time, approximately two-thirds of large businesses are under inquiry, often involving multiple disputes and years. Typically, after investigation of individual cases, the amount actually due tends to be around half the initial estimate. The tax under consideration figures — released after a freedom of information request — cover all taxes, including corporation tax, VAT, payroll taxes and national insurance.
Ms Self said that as well as seeing their tax affairs put under the microscope, many of the largest businesses were finding it harder to get tax uncertainties resolved. That was because of strains on HMRC’s customer relationship manager (CRM) system, under which specific officials manage the relationship with the 2,000 largest and most complex businesses across all taxes and duties.
Ms Self said that “many of the largest businesses are struggling with HMRC’s customer relationship manager (CRM) system and finding it more difficult to get uncertainties resolved in real time”.
The crackdown on avoidance is one reason why corporate tax paid by large businesses increased by 12 per cent from £44.4bn to a record £49.5bn in 2016-17. Large companies are the main contributors to corporate tax revenues with about 7,000 companies — under 1 per cent — paying 54 per cent of all the corporate tax collected in 2015-16.
The latest figures are likely to reflect HMRC’s investment in transfer pricing specialists, who scrutinise the prices charged on transactions between different parts of the same company. Transfer pricing investigations were the largest source of risk in big companies’ tax affairs in March 2016.
HMRC’s transfer pricing team was expanded by a quarter after it was given an extra £29m in 2012 to challenge abusive transfer pricing arrangements, after MPs attacked the tax affairs of companies such as Google, Amazon and Starbucks.
HMRC said: “Tax under consideration is not tax owed or unpaid, it’s an estimate of what might be at stake if we didn’t investigate. By effectively enforcing the rules HMRC has, since 2010, brought in £53 billion that would have otherwise gone unpaid and collected over £8 billion from large businesses last year alone.
“We are clear that large companies, like any other taxpayers, must pay the tax that is due and we do not settle for less.”
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