In 2024 alone, HM Revenue & Customs (HMRC) clawed back a staggering £45.7 billion in unpaid taxes, £10 billion more than the previous year.
With 5,000 new compliance officers set to join its ranks over the next five years, businesses should brace themselves for heightened scrutiny.
One area in particular is under the spotlight – VAT.
An estimated £10.1 billion in unpaid VAT was flagged in the last tax year, marking a 20 per cent rise from 2023.
HMRC believes much of this stems from businesses pushing the boundaries of tax interpretation, and it is clear that the Government is determined to narrow the growing tax gap, which is edging closer to £40 billion.
A tougher stance on VAT compliance
HMRC’s message is clear that businesses must toe the line on tax compliance, particularly when it comes to VAT.
Large businesses are already feeling the heat, with 72 per cent of unpaid VAT linked to disputes over legal interpretations.
Despite this, only five companies last year proactively disclosed their VAT positions to HMRC, a risky move for those who may later be challenged.
For businesses that have taken an aggressive stance on VAT mitigation, now is the time for a reassessment.
Non-compliance can lead to financial penalties and interest charges and also damage a company’s reputation.
No business wants to be caught up in a lengthy HMRC investigation that could have been avoided.
How to stay ahead of HMRC scrutiny
With tax compliance now a bigger priority for HMRC than ever, businesses need to take proactive steps to protect themselves:
- Review your VAT position – If your business has relied on aggressive tax strategies, ensure they are fully defensible under current regulations.
- Keep meticulous records – HMRC is increasingly demanding detailed documentation during compliance checks, so strong record-keeping is crucial.
- Consider voluntary disclosure – If there is any uncertainty over a particular tax treatment, proactively engaging with HMRC can help mitigate risks and potential penalties.
The bottom line? HMRC is tightening the reins, and businesses that fail to adapt could face unwelcome surprises.
If you are unsure where you stand, contact our team who can help you with these changes and safeguard your business.
