Actual cash income from HMRC investigations falls despite taxman’s claims of record yield

Publications that covered this story include The Times on 1 September 2018.
  • More than half of HMRC’s ‘record’ investigation yield is hypothetical, not real cash
  • Unexpected fall comes despite Treasury pressure to clamp down on avoidance and evasion

HMRC saw its actual cash income from tax investigations unexpectedly drop in the past year, despite the ‘record high’ in extra tax the authority claims to have collected.

The £10m fall in real cash collected, from £10.34 billion to £10.33 billion, comes despite pressure from HM Treasury for HMRC to keep increasing income from tax investigations.

HMRC recently announced a ‘record yield’ from investigations. However, more than 50% of the £30.3 billion total is made up of hypothetical estimates by HMRC, such as ‘revenue losses prevented’ and ‘future revenue benefit’, not actual money collected.

Both of these measures represent theoretical ‘income’ made by discouraging taxpayers from attempting to avoid or evade taxes, either this year or in the future, rather than actual money collected. Use of these hypothetical figures disguised a fall in true cash receipts from tax investigations.

Businesses should be aware that HMRC may become more aggressive in investigating businesses’ tax affairs in response to the fall in cash receipts. The tax authority has gained a reputation over the last decade for heavy-handedness in investigating what it sees as deliberate tax avoidance and evasion.

Businesses, however, complain that investigations are often triggered by simple errors, oversights or disagreements about how tax rules are applied in practice. These investigations can take many months or even years to complete, and can be extremely costly to a business that may not have internal resources to deal with the issue.

Simon Browning, partner in our Nottingham office, comments: “The actual cash HMRC has collected from investigations has clearly fallen, no matter how HMRC wants to present it.”

“HMRC may have loudly trumpeted the success of its investigations, but the majority of that yield is questionable. Breaking records isn’t all that difficult when the numbers are hypothetical.”

“The unexpected fall in actual cash income from investigations means HMRC is likely to be under even greater pressure from the Treasury this year. That pressure may well be passed on to taxpayers in the form of an even more hostile approach to investigations.”

“It’s more important than ever that businesses avoid the sort of errors and oversights in tax returns that can very easily trigger an investigation. Having your business investigated by HMRC can be an enormous disruption in terms of both cost and management time.”