UK Extracts Record Tax Revenues From Big Business

by Robert Lee, Tax-News.com, London

Tuesday, February 07, 2012

The UK tax authority HM Revenue and Customs (HMRC) raised record revenues from enquiries into large businesses last year, new figures show.

According to statistics from the commercial law firm McGrigors, compliance activity by HMRC’s Large Business Service unit yielded receipts of GBP4.06bn (USD6.4bn) in 2010/2011, more than double the amount five years ago. In comparison, 2005/06 saw HMRC raise just GBP2.2bn through the same activity. The average yield per company was also up, from GBP4.69m in 2007, to GBP8.87m last financial year.

McGrigors says that HMRC’s investigations strategy is to take a light touch and less intrusive approach on those companies that it views as being at a “low risk” of avoiding or misaccounting for tax, instead spending more time investigating “higher risk” organisations. In addition, HMRC is pushing this approach down to all sizes of business.

Jason Collins, Partner and Head of Professional and Financial Services Sector at McGrigors commented: “HMRC is trying to squeeze more and more revenue from their tax investigations into large businesses. Several tax lobbying groups, like UK Uncut, claim that the UK government has gone soft on big businesses, but these figures are stark proof that this simply is not the case.”

“The Treasury is making a real effort to make the UK a more attractive tax centre for businesses to operate in by cutting corporation tax. However, there is the risk that this could be undermined by an increasingly aggressive regime of tax investigations by HMRC into corporation tax. If HMRC follows a strategy of squeezing big businesses until their pips squeak then businesses may think twice about having their tax residence in the UK.”

“When businesses consider where they are going to have their tax residence they do take into account the reputation and track record of the tax authority within that jurisdiction. With so many big businesses currently reviewing their tax residence this is an important consideration for HM Treasury,” Collins added.

Collins explained that HMRC's stance makes it more important than ever for businesses to work closely with HMRC so that they can enter the low risk category. He said that this can be done by ensuring that HMRC sees that all of the firm's financial and other management information systems are as transparent as possible. This, he stressed, will allow HMRC to see that profits and expenses are correctly allocated throughout the business.

“When you [are] trying to resolve potential disputes with HMRC do so in as co-operative and open a manner as possible. There is a real benefit to be gained from removing your company from the 'high risk' list,” Collins concluded.