Tax Investigations

Data from HMRC recently showed that its investigations into the tax affairs of the UK’s biggest businesses have been open for an average of 45 months, costing UK businesses valuable time, money and resources.

The data shows HMRC is increasingly struggling to clear a huge backlog of tax disputes - the
average length of open investigations last year was 43 months. With many enquiries into
businesses closing fairly quickly, after just a few weeks or months, this data highlights that some cases are being kept open for far longer than the four year average.

The longer the investigation, the higher the cost of obtaining professional advice will be. With investigations now taking so long, it is understandable that insurance cover for tax investigations is becoming increasingly popular amongst businesses.

Having investigations open for such a long period also means businesses are wasting substantial amounts of senior time. Unusually long investigations can also cause considerable levels of stress and worry to those who own or manage the business being investigated.

A primary reason for the delays is that HMRC is taking longer than ever to decide whether to
settle or close open investigations. As HMRC investigative officers often have to consult a wide range of internal departments before a decision is made, in many cases this slows down the final choice by HMRC to settle, litigate or close the investigation.

New data also shows that HMRC only closed 1,986 investigations into big businesses last year, a 21% drop compared to the 2,528 cases that were closed the year before. This suggests that HMRC’s problem of keeping investigations open for years on end could get even worse.

Investigations closed by HMRC in the past year had been open for an average of 17 months. In most cases that were closed, either the business in question or HMRC quickly accepted that they had made an obvious error and decided the best course of action would be to settle the case.

Due to the huge amounts of tax that HMRC believed it is has missed out on over the last few
years, it is likely to continue running long investigations in the hope that some will eventually result in additional tax revenue being secured.

The extraordinarily high levels of public spending during the Covid-19 crisis are also likely to
mean that HMRC will be increasing its efforts to bring in any additional revenue. It is therefore arguably now more important than ever that businesses have the right insurance cover in place.

Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect yourself against the cost of most tax investigations by subscribing to our Tax Investigation Service. To find out more contact 01285 842626.