Corporate report

Customer compliance: how HMRC’s compliance yield is split by business area and our approach to tax compliance and large businesses

Published 5 November 2020

Compliance yield breakdown in 2019 to 2020

HMRC has previously reported its compliance results under the headings of cash expected, revenue losses prevented, future revenue benefit, product and process, and since 2015, Accelerated Payments. In 2019 to 2020 we have introduced a new category of upstream operational see supporting documents. We still report these in HMRC’s Annual Report and Accounts 2019 to 2020, but we also report, below, from which specific directorate the compliance results were delivered, and the head of duty under which the risks tackled were identified.

In its 2014 to 2015 Standard Report, the National Audit Office (NAO) said that there were inconsistencies between how we recorded future revenue benefit (FRB) and product and process yield (these classifications are explained further in HMRCs Annual Report and Accounts 2019 to 2020). FRB was reported in the year the compliance intervention concluded, whereas product and process yield is reported when the product or process change has an impact on Exchequer receipts.

At the beginning of the Spending Review 2015 period (2016 to 2017 to 2019 to 2020), and responding to the NAO’s recommendation, we started recording FRB for the future year or years in which the FRB has an impact on Exchequer receipts. The technical note published on this topic provides more background to this methodology.

The change of methodology has had no impact on the total FRB that we score, only the timing of the year in which we score it. As a result, totals reported for the head of duty and directorate splits of compliance yield in technical notes from years prior to 2018 to 2019 are not comparable to the totals in the tables below.

The following tables show the compliance yield generated by HMRC during 2019 to 2020, broken down by directorate. Head of duty and directorate splits of compliance yield are reported on the same basis as the Annual Report and Accounts. Based on this methodology, this results in the total yield generated of £36,948 million.

Large Business Directorate

Tax regime	2019-20 (£m)
Corporation Tax	2,582
Excise	4,545
Income Tax	118
VAT	5,164
Other Compliance Interventions	788
Total	13,197

Wealthy and Mid-Sized Business Compliance Directorate

HMRC’s Wealthy and Mid-Sized Business Compliance Directorate deals with wealthy individuals (both high net worth and affluent), mid-sized businesses as well as public bodies and specialist employer compliance.

Tax regime	2019-20 (£m)
Corporation Tax	428
Excise	0
Income Tax	2,279
VAT	2,519
Other Compliance Interventions	889
Total	6,115

Individuals and Small Business Compliance Directorate

Tax regime	2019-20 (£m)
Corporation Tax	201
Excise	1,286
Income Tax	1,402
VAT	1,293
Other Compliance Interventions	773
Total	4,955

Counter-Avoidance Directorate

Tax regime	2019-20 (£m)
Accelerated Payments	113
Corporation Tax	38
Income tax	1,045
Other Compliance Interventions	908
Total	2,104

Fraud Investigation Service

Tax regime	2019-20 (£m)
Corporation Tax	162
Excise	2,329
Income Tax	324
VAT	1,045
Other Compliance Interventions	832
Total	4,692

Other Customer Group activities

This includes: other activities in relation to Risk and Intelligence Service activities, debt collection work and other personal tax compliance activity.

	2019-20 (£m)
Other compliance activities	5,885
Total	36,948

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 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), as well as to ensure greater transparency, building public confidence about the integrity of both the UK and global tax systems.

In 2019 to 2020, the Large Business Directorate achieved compliance yield of £13.2 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 lnsurance contributions.

A snapshot, as at 31 March 2020, 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	£165,217,883
Alcohol Supply Chain	£49,025,054
Apprenticeship Levy	£4,955,511
Assessment - NICs	£655,000
Avoidance	£910,035,941
Bank Levy	£113,500,118
Capital Allowances	£496,881,008
Classification	£6,109,743
CT Capital Gains	£309,396,510
Customs Procedures with Economic Impact	£597,028,215
Earnings	£74,915,684
Employment Issues	£903,740,391
EU Issues	£475,805,940
Expenses	£5,309,941
Failure to notify	£65,918,481
Financial	£2,062,722,531
Gaming Duty	£140,103,262
Group Litigation Order	£1,074,526,469
Input Tax Overclaimed	£875,802,452
Intangible Asset Regime	£1,125,015,999
International	£4,116,559,756
Leasing	£564,077,213
Loss Relief	£639,497,211
Management Expenses	£35,942,934
Oil CT Ring Fence	£106,507,508
Origin	£626,468
Other Issues	£1,315,535,055
Output Tax Underdeclared	£1,958,537,171
Partial Exemption	£366,313,925
Patent Box	£144,432,420
Post Return Amendment	£35,167,112
Post Transaction Issue	£269,917,500
Pre Return Work	£63,019,468
PSA/Dispensation	£47,151,206
Research & Development Claims	£406,141,486
Research and Development Expenditure Credit	£217,045,677
Refused Repayments	£2,904,077,613
Registered Trader	£205,571,243
Statutory Allowances / Reliefs	£32,001,152
Trading & Comps - Receipts & Deductions	£1,488,536,014
Transfer Pricing and Thin Capitalisation	£10,351,463,258
Valuation	£50,112,053
Voluntary Disclosure	£6,106,221
Workers from abroad	£46,736,492
Total	£34,827,742,289

The recorded location of the ultimate parent of each group of companies covered by the Large Business Directorate as at 31 March 2020 is shown below. We have taken ‘company’ as referring to a ‘business’ as recorded on the HMRC system – in most cases a ‘business’ will actually be a group of companies.

The table below shows the location of parent companies as at 31 March 2020.

Recorded location of the parent of the group	Tax under consideration (£bn)
UK	£24.6bn
Non-UK	£9.9bn
Associated with multiple customers with UK and non-UK parented businesses	£0.3bn

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 be actively working 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 2019 to 2020, the average length of time taken to settle an enquiry was 17 months. These figures include cases in litigation.

In 2019 to 2020, the Large Business Directorate reached decision point on risks within 18 months in 84.04% 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 as at 31 March 2020 was 170.

Business Risk Review – BRR+

The Business Risk Review+ (BRR+) rating system was introduced by HMRC on 1 October 2019.

The new BRR+ system rates large businesses based on their behaviour and strategy in relation to tax. Under the new process, companies will be categorised as low risk, moderate risk, moderate-high risk, or high-risk, as opposed to the previous ‘low risk’ or ‘non-low risk’ categories. The new system follows a public consultation in 2017 and a trial period with a group of more than 60 large business customers.

The new system provides greater clarity and consistency for customers around the BRR+ process by:

• developing clearer guidelines
• having a more standardised approach
• setting clearer expectations while adopting a deeper, collaborative approach

The 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 each of the UK’s 2,000 largest businesses.

The new 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, while enabling customers to effectively understand how their risk assessment has been reached and what steps can be taken to move to a lower risk rating.

You can read consultation information on the Business Risk Review

The table below sets out the number of businesses assessed to one of 4 BRR+ risk rating categories. These ratings are the result of BRR+ exercises completed in the period 1 October 2019 to 31 March 2020.

BRR+ risk ratings recorded between 1 October 2019 – 31 March 2020

Low Risk	Moderate	Moderate-High	High
91	148	31	4

Profits Diversion Compliance Facility

In January 2019 we launched a new Profit Diversion Compliance Facility (PDCF) and published guidance on when and how to use it. Multinational enterprises are encouraged to use the guidance to assess whether the transfer pricing methodology used to calculate their profits for Corporation Tax purposes might be incorrect. If so, they should prepare and submit a report with proposals to settle any liabilities due. A large number of businesses have registered to use the facility.

A new PDCF reports panel of senior HMRC tax specialists met twice in 2019 to 2020 to consider the first disclosures. At least 2 designated international tax specialists review each disclosure report received and make a recommendation to the PDCF reports panel on whether to accept the customer’s proposal and the panel decide whether or not to accept that recommendation.

These cases are subject to HMRC’s tax governance framework. The panel will make appropriate referrals, with recommendation, to the relevant governance boards in accordance with this governance framework.