New research from law firm Pinsent Masons has revealed that tax investigations by His Majesty’s Revenue and Customs (HMRC) into the UK’s largest businesses now take an average of 45 months to resolve. These lengthy inquiries are creating substantial challenges for the companies involved, especially considering that nearly half of all businesses monitored by HMRC’s Large Business Service are under investigation at any one time.
To qualify as a “large business” under HMRC’s criteria, companies must have an annual turnover exceeding £200 million. Approximately 1,000 of the 2,000 businesses under the Large Business Service are currently subject to ongoing tax probes. Many of these cases remain open for over four years, with roughly 2,000 separate matters still unresolved.
Strain on Business Resources
Prolonged investigations are increasingly placing strain on both financial and managerial resources. Bryn Reynolds, Partner at Pinsent Masons, pointed out that such inquiries can disrupt even the most well-resourced companies. The uncertainty created by drawn-out tax disputes can hinder strategic decision-making and divert senior leadership away from core business functions.
Reynolds commented:
“HMRC need to be more rigorous in closing long-running cases down. Having cases running for three, four or five years should be the exception rather than the average.”
While the government has promised additional funding to HMRC to increase staffing and improve tax recovery, doubts remain as to whether this will lead to quicker resolutions. Concerns have been raised over HMRC’s internal processes and a risk-averse approach that may continue to delay case closures.
Recent Warning on Tax Avoidance Schemes
Separately, HMRC has issued a warning about a tax avoidance scheme involving the use of advertising and marketing expenses to reduce taxable profits, and the conversion of employment income into redeemable loyalty points. HMRC asserts that this scheme fails to deliver the tax reliefs it claims, and businesses engaging with such strategies may find themselves under scrutiny.
What Does This Mean for Our Clients?
For our clients, this data underlines the increasing complexity and scrutiny facing large businesses in the UK. Even if your organisation is not currently under HMRC investigation, these developments suggest a more aggressive and drawn-out compliance environment. Key implications include:
Greater Need for Documentation: Ensure all tax positions are well-documented, clearly justified, and defensible.
Risk Management: Be proactive in identifying potential areas of exposure and consider seeking a pre-emptive review of your tax affairs.
Time and Cost Planning: Be prepared for lengthy engagement with HMRC if an enquiry does arise. Consider how resource allocation, particularly among senior management, could be affected.
Avoidance Scheme Caution: Avoid engaging with tax planning schemes that promise aggressive reductions in tax liabilities—especially those that haven’t been thoroughly vetted.
We’re here to support you in navigating HMRC’s evolving approach and to ensure your compliance practices are both robust and forward-looking.
If you have concerns about how these developments may affect your business, please get in touch with our team for tailored advice and support.
Disclaimer: This content is for general information only and should not be taken as legal or financial advice. Always seek professional support tailored to your specific situation.