Completely rewrite the following article in a fresh and original style. Ensure the new content conveys the same sentiment and message as the original. The rewritten article should:
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Stay informed with free updatesSimply sign up to the UK tax myFT Digest — delivered directly to your inbox.The number of large UK businesses under investigation by HM Revenue & Customs for potential underpayment of tax is at a five-year low, according to official data obtained under the Freedom of Information Act.The tax authority has historically probed about half of Britain’s 2,000 biggest companies at any one time, but about 790 companies were investigated in the 2022-23 tax year after a steady decline in recent years, the FOI figures released by HMRC showed. In 2021-22, HMRC looked into approximately 820 large businesses — which typically have annual turnover above £200mn or annual turnover below £200mn but complex tax affairs — down from about 900 in 2020-21, roughly 980 in 2019-20 and about 990 in 2018-19.HMRC said it was focusing resources “on having the maximum impact” and “collecting more tax from large businesses”, with “compliance work last year bringing in £1.6bn more than in 2018-19”.“The potential value of our large business cases has steadily increased demonstrating our determination to ensure large business pay the tax they owe,” it added. Analysts said various factors had driven the decline in total investigations, including the suspension of probes by the agency into companies and individuals during the pandemic. Pressure on resources at HMRC, which has been criticised by MPs for underperformance, had also had an impact. “Investigations into large businesses require HMRC’s most qualified and highly experienced investigators, and these are in high demand and short supply,” said Ray Grove, head of corporate tax and trade at content and technology company Thomson Reuters, which submitted the FOI request.Dawn Register, head of tax dispute resolution at accountancy firm BDO, said HMRC had “limited resources” and that “increasing capacity . . . would boost overall returns in the long term”. Labour pledged in its general election manifesto to spend an extra £855mn a year on “investment in HMRC to reduce tax avoidance”.But despite challenges, tax experts said they broadly agreed with HMRC’s explanation that it was using current resources to better target compliance activity on large businesses. Register said that despite the fall in the number of investigations, HMRC’s annual report for 2023-24 showed it was “focusing its efforts on cases where higher amounts are at stake”. She pointed to an increase of £1.6bn in the compliance yield — the estimate of tax revenue that would have been lost but for HMRC’s compliance activity — from £9.8bn in 2018-19 to £11.4bn in 2023-24.Investigations were also being completed faster, according to HMRC’s annual report, with the average inquiry concluding within 21 months in 2023-24, down from 36 months in 2022-23. Andrew Park, partner at accountancy firm Price Bailey, said: “For once, the apparent drop in live investigations may actually be a sign of positive progress.”He cited the new “notification of uncertain tax treatments” as one factor that had helped HMRC decide which large businesses to probe and acted “as a big deterrent”. Under the legislation — which came into effect under the last Conservative government in April 2022 but covers transactions that happened before then — large businesses must notify HMRC when their tax position is “uncertain” and it is not clear that the business’s position is correct.Park said the law aimed to reduce the “legal interpretation” tax gap, which was originally estimated at about £6bn in 2019-20 but has since fallen to roughly £4bn. The tax gap is the difference between the amount HMRC estimates should be collected and what is actually paid, and in total stood at £39.8bn in 2022-23.RecommendedBefore the law was introduced “some large businesses sailed as close to the wind as they dared in finding sophisticated and optimistic arguments to bring down their tax bills”, said Park. Tax experts said they expected investigations to increase over the course of the current parliament, with the Labour government vowing to curb tax evasion and avoidance to help fund its manifesto pledges.Jake Landman, tax partner at law firm Pinsent Masons, said HMRC would “always look to get the best return on investment — and that will probably mean more investigations into large businesses”. “It’s an area where investigating even a small disagreement between HMRC and a business can yield a large amount of extra tax and penalties,” he added.
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