HMRC cracks down on big businesses with £3.4bn VAT collection

BIG business paid out an estimated £3.38bn in tax to HMRC as the tax authority continues its clampdown on large corporates, particularye-commerce firms, underpaying VAT.

According to international law firm Pinsent Masons, HMRC has increased the number of investigations it conducts on large firms.

The money was collected by HMRC’s Large Business Directorate. Established in 2014, the group works to ensure that the UK’s biggest and most complex businesses comply with tax law. Between 2014 and 2015, the directorate had 1,960 enquiries into VAT open in total.

As a result of this crackdown, the estimated tax gap has now fallen from a staggering £34bn in 2013-14 to £13bn the following year. Pinsent Mason said the sum reflects a shift by HMRC towards targeting underpayment of VAT by the largest businesses with the most complex tax affairs.

Darren Mellor-Clark, partner at Pinsent Masons said that HMRC believes that e-commerce companies do not effectively police retailers that they host on their website, potentially increasing the risk of VAT avoidance.

“Underpaid VAT is one of the biggest components of the tax gap and HMRC feels there are billions more that it could bring in. So, despite the complexity of VAT, we expect HMRC to continue to pour resource into this area,” said Mellor-Clark.

“HMRC is under pressure to stop companies avoiding VAT by selling primarily online, but it can be difficult for HMRC to pursue companies overseas. Attempting to prosecute a foreign company can create its own set of legal challenges – if the amount is small then that becomes a disincentive,” continued the partner.