There is a worrying trend that has emerged over the past few years – HMRC are growing in power and extracting every last pound that they believe that they are owed.

The lengths that the taxman is going to are, to some, extreme and Orwellian. In this article, we’ll show you what they’re changing and what effect it is having on businesses across the UK.

HMRC tax gap crackdown – HMRC’s rising rate of return in large business investigations

According to the law firm, Pinsent Masons, HMRC has increased their return on investment per pound in what they spend on investigating large businesses.  This is particularly important because the top half-a-percent of businesses in the UK make up 40% of HMRC’s tax collection. So, the yields to be made in this field is a big deal to the taxman.

In 2015/16, HMRC took £66 per £1 that they spent on investigating large businesses. Last year, that number rose to £77.  This 17% increase marks the highest rate of return for any special investigations team created by the government.

The Diverted Profits Tax that was introduced in 2015 was a blow to large businesses as it was another way that HMRC could squeeze the proverbial pips for more tax. This tax was applicable to businesses who divert their revenues overseas to avoid paying their UK dues. This has further incentivised HMRC to continue their investigations into large business tax evasion.

HMRC tax gap crackdown – the tax gap

HMRC’s increased efforts to become more efficient is partly due to something called they call the “tax gap”. This is the difference between how much HMRC expects to take in and how much they actually collect.

HMRC has said that in 2015/16, the tax gap has shrunken to 6% of tax liabilities. That might not sound like much however that does amount to a massive £34 billion.

The tax gap is the result of people making simple mistakes when they file their returns along with both businesses and individuals purposefully using the available legislation to avoid taxes. HMRC intends on tackling this issue in two main ways. The first is their vast supercomputer database…

HMRC tax gap crackdown – the supercomputer

HMRC’s supercomputer named “Connect” was unveiled and put into use in 2010. This computer sifts through an inordinate amount of information – it stores more data that the entire British Library!

This information is used to connect the dots between how much profit your business makes, how much your investments have generated, and how much you ought to be paying in taxes. If your return is significantly different to what HMRC predicts, you will be flagged up and subsequently investigated.

HMRC has been extending its data collection powers. It now has access to companies such as Apple and Amazon. They can see the names and addresses of sellers, and they use this information to help build a case for tax avoidance or evasion.

HMRC tax gap crackdown – the investigation team

A department known as HMRC Special Investigations (formerly known as Special Civil Investigations) are a team that deals in serious tax evasion offences. They have been targeting large businesses lately which has resulted in the collection of significant amounts of revenue.

Generally, this team only deals with a perceived tax loss of at least £500,000. They only use experienced tax investigators so any investigation that they undertake will be put through an intensive forensic analysis.

HMRC tax gap crackdown – we can help

If you would like advice on how to save the most money in taxes as possible, while staying on the right side of the law, get in touch with our team of experts. Call us on 01606 333 900 or email us at hello@burtonbeavan.co.uk.