HMRC works hard to make sure that individuals and businesses pay their taxes. An seemingly obvious point.
But is important to acknowledge the hard won success of their investigations into those who actively avoid paying their fair share. It takes a lot of time, effort, experience and expertise to prove cases that involve such huge amounts of money.
In the last year, HMRC have turned their focus on 2,000 of Britain’s largest companies in the technology and financial services sectors. This has yielded £9.8billion in previously unpaid VAT, Corporation tax and other taxes. A great success for the investigating task forces.
How much VAT and Corporation Tax was recouped?
Of the total reclaimed £9.8bn, £6bn came from VAT investigations, £2.6bn from Corporation tax and the reminder form other types of enquiries. This is 12% more than last year’s £8.7bn total. And a massive increase in just five years. The 2014-15 tax year total was only £7.3bn.
HMRC have targeted their resources towards big companies in the tech and financial industries. There seems to be a constant stream of stories about tax avoidance in these sectors, with some big names hitting the headlines.
HMRC itself estimates that about £12.5bn VAT is not being paid. That’s 9.1% of all expected VAT payments.
How do we know this?
The international law firm Pinsent Masons announced its research findings after they scrutinised HMRC’s published information.
How does this affect future HMRC tax investigations?
The success of this year’s investigations will no doubt influence HMRC’s future planning. There are a few key issues that are likely to retain their importance.
Public spending promises need to be paid for
One of Pinsent Masons’ partners, Stuart Walsh, said: “Bigger UK and foreign businesses are going to find themselves under continued scrutiny from HMRC over the next year. The new Government’s spending pledges mean HMRC and the Treasury will be under pressure to raise more money. The view is that big businesses are not being put off investing in the UK because of the tax environment so that gives HMRC scope to continue to push very hard wherever it sees the possibility of underpaid tax.”
‘Place of supply’
‘Place of supply’ means a company identifying where a service is supplied from. If this is wrongly reported, accidentally or deliberately, this could mean that the VAT liability has not been met. As an example, if a service is supplied from within the UK, VAT is owed. So if the place of supply is reported as being outside the UK, legitimate VAT is not paid.
VAT exemption rules
The VAT exemption rules in the financial services sector are of particular interest to HMRC here. Certain things are exempt from VAT, but a lot financial services are liable for tax and there have been recent rule changes to include more VAT payable items. Things that are not exempt form VAT are: portfolio management, M&A advice, some investment research and advice and pension fund management services provided by insurers.
How businesses define themselves
Currently, HMRC are investigating Uber’s definition of itself as a ‘middleman’ that is not liable for VAT. In its published accounts, it says “the Uber Group is involved in an ongoing dialog with HMRC, which is seeking to classify the Uber Group as a transportation provider. Being classified as a transportation provider would result in a VAT (20 per cent) on Gross Bookings or on the service fee that the Company charges Drivers, both retroactively and prospectively”. This has the potential to cost the company up to £1bn in unpaid VAT. Other similar companies will be watching the outcome of this case with great interest.