The Government has made it clear it will be looking to increase tax revenues, with a distinct focus on tax compliance, announcing “the most ambitious ever package to close the tax gap” in the Autumn Budget.
This includes a £1.4bn investment to recruit and train 5,000 compliance staff and the appointment of a Covid Corruption Commissioner to recover funds from those who wrongly claimed government support during the Covid-19 pandemic.
The latest figures show the tax gap for 2022/2023 stands at a record high of an estimated £39.8bn (4.8 per cent of tax liabilities).
With such a deficit, it comes as no surprise that in the last quarter, HMRC opened 93,000 tax investigations, well above the 78,000 average.
What will this mean for businesses and individuals?
We anticipate a key focus area for HMRC activity will be on employer compliance – particularly given that PAYE and National Insurance Contributions account for the largest proportion of tax revenues for the Government – and with the appointment of a new Covid Corruption Commissioner, payments for furloughed staff under the Coronavirus Job Retention Scheme are very likely to sit at the top of the investigation list.
HMRC already conducts regular National Minimum Wage (NMW) compliance campaigns, and while the revenue isn’t necessarily targeting employers it believes are deliberately paying below NMW rates, these audits can often find technical breaches in areas such as working time, pay deductions and age-related rates.
Certain ‘non-employees’, such as contractors and consultants, can also be subject to NMW rules and this is an area of particular interest for HMRC when reviewing a business’ records.
What can make you a target for an HMRC investigation?
There are several reasons why you may be more likely to trigger attention from HMRC, including the sale of a business, incorrect information, high net-worth individuals or changes in your financial reporting.
However, no one is immune to a tax investigation – even companies and individuals confident of their compliance.
Action to take
It is important to identify any compliance gaps in your business or personal tax affairs. With National Minimum Wage and employer National Insurance Contributions increasing in April 2025, employers will need to be extra vigilant in these areas.
If HMRC launches an investigation the range of records and documents the inspector might check is vast and will likely include your annual HMRC tax returns, any PAYE records, tax you have paid, self-assessment returns, full company records or tax calculation evidence.
