HMRC investigations into individuals and small businesses last year yielded no returns in nearly half of of all cases, according to new research shared with City A.M. this afternoon.

The proportion of investigations which returned no money to the Treasury has risen by over a third, to 47 per cent last year up from 31 per cent the year before, accountancy accountancy group UHY Hacker Young.

Graham Boar, Partner at the firm, explained to City A.M. that these HMRC investigations which result in no additional tax can cause taxpayers unnecessary distress.

Many of those taxpayers will have had to invest considerable time and money into dealing with HMRC’s investigations, bringing in additional professional support for fear of falling foul of the law, he added.

“Investigations by HMRC can be highly intrusive into taxpayers’ affairs, starting with seemingly informal questions that can develop into fully-fledged enquiries taking years to close,” Boar continued.

Historically, investigations have often come up short, with just 2/3rds generating additional tax during 2019/20. 2018/19 experienced a three-year high of failed investigations, with 129,000 raising no money for the Revenue.

“This begs the question as to whether HMRC could do better in targeting the right taxpayers for investigations,” Boar explained.

£100m investment

To combat non-compliance and support in its tax investigations, HMRC invested an estimated £100m in software which tracks patterns in customer data across its services.

The Connect system was introduced in 2010 to make HMRC’s job at collecting unpaid tax easier by risk profiling individuals and businesses.

However, the low success rate of investigations suggests it may be failing to exclude the lowest risk taxpayers.

Graham Boar said: “These statistics show that HMRC is coming up short in too many of its investigations.”

“HMRC has a strong track record in collecting money from additional compliance checks, raising £13.6bn last year. But as it aims to close the tax gap, too many people are getting caught in its net.”

“Taxpayers need reassurance that there is a valid reason for an investigation to be opened into their affairs and that time and stress isn’t wasted on cases that will yield no results.”

HMRC response

When approached by HMRC this afternoon, a spokesman told City A.M. that “decisions on when and where to intervene are not driven solely by the amount of money that it may recover; we also consider the broader impact our interventions will have on compliance in the tax system as a whole.”

“It’s important for taxpayers to know we cover all parts of the economy impartially, so they can be confident they aren’t being disadvantaged,” he added.

“Some of our interventions, such as educational visits, don’t aim to bring in yield. If our compliance check shows there is nothing wrong, we’ll bring it quickly to an end,” the spokesperson said.


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