Corporate report

Customer compliance: our approach to tax compliance and large businesses

Published 17 July 2023

Compliance yield for the Large Business Directorate in financial year 2022 to 2023

The following tables show the compliance yield generated by the Large Business Directorate during 2022 to 2023. The tax regime compliance yield is reported on the same basis as the Annual Report and Accounts.

Large Business Directorate

Tax regime	2022 to 2023 (£m)
Corporation Tax	2,557
Excise	468
Income Tax	27
VAT	5,142
Other compliance interventions	411
Total	8,606

Note: The technical note Tax by different customer groups shows £10.2 billion of compliance yield from activity undertaken in respect of customers in the large business customer segment.  This includes compliance yield achieved by multiple HMRC Directorates.  £8.6 billion reflects the proportion of compliance yield achieved solely by the Large Business Directorate.

HMRC’s approach to tax compliance and large businesses

HMRC’s Large Business Directorate works with around 2,000 of the UK’s largest and most complex businesses to make sure they pay the correct amount of tax at the right time. We subject large businesses to an exceptional level of scrutiny; we actively investigate the tax affairs of around half of the UK’s largest businesses at any one time.

The department’s compliance strategy is based on directing our efforts where we think there’s the greatest risk of tax being unpaid.

With large businesses, the money involved, and the complexity of their tax affairs means we take a resource-intensive approach. We assign a senior compliance professional called a Customer Compliance Manager (CCM) to each of the UK’s largest businesses. Their primary role is to make sure the business pays everything it owes. CCMs are experts in their field and build an in-depth knowledge of the business and the sectors it operates in. They are also supported by tax specialists for all regimes, and can call on data analysts, solicitors, audit specialists, trade sector experts and forensic accountants.

HMRC’s approach is in line with internationally recognised best practice. We continue to enhance our cooperative compliance model by further engagement with other fiscal authorities. This enables us to share best practice, to work more efficiently with multinational enterprises (MNEs), and to ensure greater transparency, building public confidence about the integrity of both the UK and global tax systems.

In 2022 to 2023, the Large Business Directorate achieved compliance yield of £8.6 billion as shown in the table above.

Tax under consideration

Tax under consideration is an estimate of the maximum potential additional tax liability in each case before we have carried out a full investigation of the specific facts or analysis of relevant law. It is not actual tax either owed or unpaid, it is a tool to guide our enquiries to focus on the most significant risks that exist at any particular time with the largest businesses.

In many cases, when we have looked at the full facts, it becomes clear that there is some lesser liability or even no further liability at all. Tax under consideration will naturally vary from time to time as outstanding issues are settled and new risks are identified.

The total is a snapshot of work in progress at a given point. Tax under consideration covers all taxes and duties, including Corporation Tax, VAT, PAYE and National Insurance contributions.

A snapshot, at 31 March 2023, of the tax under consideration figure for enquiries by HMRC’s Large Business Directorate is shown in the following table:

Inaccuracy category	Tax Under Consideration (£)
Accounting Standards	179,021,131
Alcohol Supply Chain	15,814,500
Anti-Dumping Duty	24,399,902
Avoidance	928,723,418
Bank Levy	199,466,039
Capital Allowances	448,591,952
Classification	7,281,612
Corporation Tax Capital Gains	219,379,511
Customs Procedures with Economic Impact	52,848,760
Earnings	120,004,551
Employment Issues	1,051,006,144
EU Issues	295,768,576
Financial	1,186,266,331
Group Litigation Order	828,093,545
Intangible Asset Regime	1,735,339,347
International	11,640,231,487
Leasing	104,222,145
Loss Relief	1,088,748,876
Management Expenses	233,636,589
Origin	17,986,592
Other Issues	3,161,657,388
Partial Exemption	867,793,000
Patent Box	226,109,986
PAYE Settlement Agreement/Dispensation	24,976,394
Post Return Amendment	435,682,162
Research and Development	727,222,854
Refused Repayments	2,040,621,406
Registered Trader	177,870,536
Returned Goods Relief	1,078,842
Stamp Duty Land Tax	37,803,000
Trading and computations - Receipts and deductions	2,434,294,560
Valuation	50,467,460
VAT Error	1,243,113,802
VAT Legal Interpretation & Boundary Pushing	6,030,813,050
Workers from abroad	5,401,833
#Grand Total	37,841,737,281

Note: From 1 April 2020, HMRC began the process of streamlining inaccuracy categories and this work is ongoing.

A snapshot, at 31 March 2023, of the tax under consideration figure for enquiries by HMRC’s Large Business Directorate, split by country , based on the recorded location of the ultimate parent of each group of companies, is shown in the following table:

Country	Tax Under Consideration (£)
Canada	46,551,484
France	606,748,964
Germany	684,989,772
Ireland	534,953,246
Japan	318,985,449
Netherlands	458,051,903
Switzerland	1,118,977,632
United Kingdom	26,336,224,754
United States	5,588,984,291
Other	2,147,269,786
Grand Total	37,841,737,281

Figures that could risk identifying entities have been aggregated and provided as ‘other’ within the table. ‘Other’ includes tax under consideration associated with multiple customers with UK and non-UK parented businesses.

A snapshot at 31 March 2023 of the tax under consideration figure for enquiries by HMRC’s Large Business Directorate, split by sector is shown in the following table:

Sector	Tax Under Consideration (£)
Alcohol	371,742,765
Automotive	468,295,310
Banking	9,182,366,207
Betting and gambling	503,491,055
Business services	974,179,683
Construction	577,094,556
Insurance	1,877,804,500
Media	1,002,962,966
Oil and gas	1,869,039,640
Other	5,297,224,526
Pharma and healthcare	4,041,360,228
Real estate	578,626,434
Retail	4,142,460,572
Telecommunications and information technology	4,597,246,592
Transport	833,440,420
Utilities	1,524,401,827
Grand total	37,841,737,281

The classification is based on internal information on business sector and ‘Other’ includes classifications which are not allocated to a sector, is a cross sector business or where the sector has 5 or fewer customers.

The figures provided here cover all taxes, including Corporation Tax, VAT, PAYE and National lnsurance contributions.

The recorded location of the ultimate parent of each group of companies covered by the Large Business Directorate at 31 March 2023 is shown below:

Recorded location of the parent of the group	Tax under consideration (£bn)
UK	26.3
Non-UK	10.3
Associated with multiple customers with UK and non-UK parented businesses	1.2

Length of time taken to resolve enquiries involving large businesses

At any given time, around half of the largest businesses are under enquiry, often covering multiple issues and years. We record our enquiries into tax issues as ‘risks’ and, if a single issue covers multiple years, we record this as a single risk.

Risks cover all taxes and duties, including Corporation Tax, VAT, PAYE and National Insurance contributions. HMRC will actively work open risks towards resolution, and our statistics include those where this requires litigation. Risks are recorded as closed when the issue has been resolved. The stock of risks will continuously change as risks are concluded and new risks are identified and opened.

By engaging with businesses in ‘real-time,’ Customer Compliance Managers identify emerging tax risks and resolve tax disputes at the earliest opportunity.

Our stock of open risks is increasingly characterised by complex and novel areas of tax law, including instances where customers are challenging HMRC’s opinion of where legal boundaries lie, or which require litigation to conclude. These risks will typically take longer to resolve.

For enquiries that concluded during 2022 to 2023, the average length of time taken to settle an enquiry remained stable at 36 months. These figures include cases in litigation.  Cases in litigation continue to significantly increase the average length of time an enquiry has been in progress.

The decision point is where a risk is concluded or has entered litigation.  In 2022 to 2023, the Large Business Directorate reached decision point on risks within 18 months in 81.57% of cases.

Customer Compliance Managers

We manage the tax compliance of large businesses through Customer Compliance Managers (CCMs) because the tax at stake, their size and complexity and the significant risk these businesses present to the Exchequer, mean that this is the most cost-effective way of ensuring they pay the right amount of tax.

The number of CCMs working in the Large Business Directorate at 31 March 2023 was 167.

Business Risk Reviews – BRR+

Having been introduced in October 2019, the Business Risk Review+ (BRR+) process is now business as usual for HMRC.

The BRR+ process rates large businesses based on their behaviour and strategy in relation to tax. Under the BRR+ process, companies are categorised as Low Risk, Moderate Risk, Moderate-High Risk, or High Risk.

The BRR+ process is designed to provide clarity and consistency for customers by:

• providing a granular narrative from HMRC, including at separate tax regime level
• developing clear guidelines
• having a standardised approach
• setting clear expectations while adopting a deep, collaborative approach

BRR+ is a core feature of how we ensure large businesses pay the tax they legally owe. They are carried out by HMRC customer compliance managers (CCMs) who work with approximately 2,000 of the UK’s largest businesses. The CCM is supported by tax specialists in each of the relevant tax regimes.

The BRR+ process helps us focus our compliance resources where there is the greatest risk of businesses not paying the right amount of tax. It aims to encourage businesses to reduce their risk profile with HMRC, whilst enabling customers to effectively understand how their risk rating has been reached and what steps can be taken to move to a lower risk rating.

The table below sets out the number of businesses assessed to one of four BRR+ risk rating categories.

BRR+ risk rating recorded between 1 April 2022 – 31 March 2023

Risk	Rating
Low	223
Moderate	307
Moderate-high	48
High	12

BRR+ is enhanced by data led risk assessments, sectoral and customer understanding. This approach ensures HMRC can consider the risk of non-compliance across the large business customer population and identify where this is most significant.

HMRC introduced an Annual Conversation with all customers not receiving a BRR+ during the period 1 April 2021 to 31 March 2022 where businesses had the opportunity to discuss with HMRC business developments and raise any issues. 90% of all Large Business customers had either a BRR or an Annual Conversation in 2022 to 2023.

Uncertain Tax Treatment

Uncertain Tax Treatment (UTT) is a requirement for large businesses to notify HMRC when they take a tax position in their returns for VAT, Corporation Tax, or Income Tax (including PAYE) that is uncertain.

Since 1 April 2022, approximately 2,300 large and mid-size businesses with a turnover of £200 million and/or a balance sheet total of over £2 billion have been required to notify any uncertain tax treatment where there is a tax advantage of more than £5 million.

The Uncertain Tax Treatment legislation intends to:

• help reduce the legal interpretation portion of the tax gap by promoting early identification and disclosure to HMRC of tax uncertainties by large businesses in scope
• create a level playing field with low-risk customers who we expect to engage with us when they are looking to apply an uncertain tax treatment
• strengthen HMRC’s commitment to early engagement by providing an exemption from the notification requirements where relevant information is provided to HMRC at an earlier stage
• promote fairness in the system by requiring all uncertain tax treatments to be notified
• contribute to HMRC’s compliance strategy of seeking to work with customers in real-time

An uncertain amount exists if one or both of the following two notification criteria (or triggers) are met and create a tax advantage that exceeds a £5 million de minimis threshold.

1. Provision - a provision is created relating to a transaction to reflect a different tax treatment may be applied to the transaction

2. HMRC’s Known Position - tax treatment relies on an interpretation/application of the law not in accordance with the way it is known that HMRC will interpret or apply the law

Where customers identify an uncertain amount that is potentially notifiable, they can notify HMRC via their existing relationships with Customer Compliance Managers (CCMs) for the LB Directorate or the Mid-Sized Business Customer Support Team to obtain exemption from formal notification (“pre-notification”). Alternatively, customers can make a formal notification through the Uncertain Tax Treatment online portal on GOV.UK.

UTT Formal notifications and Exemptions 1 April 22 to 31 March 23

Table below illustrates the breakdown and value of notifications/exemptions so far:

Regime	Total Pre-notifications	Total Notifications	Value of reported Tax Advantage (£)	Criteria notified – Known position	Criteria notified – Provision
Corporation Tax	7	Fewer than 5	293,573,319	Fewer than 5	8
VAT	Fewer than 5	0	77,962,737	Fewer than 5	0
Income Tax-PAYE	Fewer than 5	0	53,000,000	Fewer than 5	0
Total Value (£)	221,427,713	203,108,343	424,536,056	150,687,516	273,848,540

Profits Diversion Compliance Facility

In January 2019, HMRC launched the Profit Diversion Compliance Facility (PDCF).  The PDCF enables multinational enterprises (MNEs) using, or which have used, arrangements of the sort targeted by the Diverted Profits Tax to review their arrangements.  MNEs then put forward a report to HMRC, following our published PDCF guidance, with proposals to bring their UK tax affairs up to date and settle any liabilities due.

During the COVID-19 pandemic extra time was granted to a number of PDCF registrants to complete their disclosure report.  In the year to 31 March 2023 a panel of senior HMRC tax professionals continued to consider, and agree, the proposals put forward by MNEs in 24 separate reports.