Cash income from HMRC’s investigations falls – forcing more investigations

HMRC’s annual report shows that real cash collected from investigations has fallen from £10.34 billion in 2016/17 to £10.33 billion in 2017/18.

The fall in actual cash income comes as HMRC face growing pressure from HM Treasury to increase its compliance yield. This pressure will likely be passed onto taxpayers in the form of an even more hostile approach.

HM Treasury has pledged an extra £1.8 billion to HMRC in the lead up to 2020. In return for this larger budget, HMRC have committed to collecting nearly £1 billion of additional tax revenue annually by 2020-21. The recent fall in cash income will therefore be concerning for HMRC.

HMRC’s aggressive approach to investigations can be seen in the number of judicial reviews filed by taxpayers last year. Taxpayers can challenge HMRC through judicial reviews when they believe HMRC have overstepped their authority or acted unfairly. The number of reviews has increased by 36% over the last year to 122, up from 90 in 2016/17.

Many businesses already feel that they are being unfairly targeted by HMRC as they hunt for extra revenue. They argue that investigations are often triggered by simple errors, oversights or disagreements about how tax rules are applied, not by bad or illegal practices.

Not only are these investigations disruptive and time-consuming for businesses, but they can be extremely costly. Investigations use up resources on external legal spend and can lead to loss in revenue if sales are reduced. Potential reputational damage caused by a tax investigation may lead to even greater long-term losses.

Investigations can be costly, disruptive and stressful. You can protect yourself against the cost of most tax investigations by subscribing to Larking Gowen’s Tax Fee Protection Service. To find out more, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.