HMRC’s investigations into VAT avoidance by the UK’s largest companies have resulted in a record additional tax take over the past year, according to analysis by law firm Pinsent Masons.
Pinsent Masons says that investigations by HMRC’s Large Business Service into the VAT arrangements of the UK’s 770 biggest businesses netted a total of £1.44bn in 2012/13, a 18% increase on the £1.23bn yielded in the previous year, and more than treble the £443m raised in 2009/10.
According to the research, one reason for the rise in extra VAT income is HMRC’s new powers to levy extra penalties on businesses that fail to co-operate with its investigation, ranging from 30% to 100% of potential lost revenue, depending on whether the infractions are deliberate or involve concealing VAT information.
Darren Mellor-Clark, partner at Pinsent Masons, said: ‘Over the past year, HMRC has been making use of its power to crack down even harder on businesses that it deems “unhelpful” when investigating their VAT arrangements. Depending on how serious investigators decide the infraction is, businesses can see their VAT bills double when penalties are included.’
Pinsent Masons is also warning of a tough new approach so-called ‘carousel’ or ‘missing trader’ VAT fraud. The firm says HMRC is now preventing the legitimate parties in the chain from reclaiming their VAT payments on the trades, in an attempt to force them to check that their trading partners are not involved in fraud. Financial services, energy and retail sector businesses have been particularly affected by this approach, it claims.
Mellor-Clark said: ‘While few would disagree that it is important that HMRC does as much as possible to prevent carousel fraud, aggressively cracking down on unwitting parties that are involved, often through no fault of their own is, for some observers, a controversial method to increase VAT yield. It is extremely difficult for businesses to ascertain with any certainty whether a supplier is involved in fraud.’
Other research, by UHY Hacker Young, shows that the amount of additional tax HMRC has collected as a result of investigations into personal tax returns has also gone up significantly, to reach £609m in 2012-13, a 38% rise from £441m the previous year. The firm says targeted campaigns, particularly of landlords in the buy-to-let sector, are part of the reason.
Mark Giddens, head of private client services at UHY Hacker Young, said: ‘A major push to recover missing taxes was launched in 2010, and is backed by the sophisticated exploitation of big data and extremely aggressively targeted pursuit of subgroups of personal tax payers.’
This is likely to include a greater focus on vestigating the tax affairs of those in the highest-paying tax band, with the expansion of HMRC’s Affluent Team which brought in £75m in 2012-13 and is expected to bring in the same amount, or more, in 2013-14.
Giddens said: ‘Although the Affluent Team only investigates a small proportion of taxpayers, the wealth of these individuals and the complexity of their tax affairs gives HMRC scope for recovering far greater sums in unpaid tax.’