Customer compliance: our approach to tax compliance and large businesses
Updated 24 November 2021
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This publication is available at https://www.gov.uk/government/publications/hmrc-annual-report-and-accounts-2020-to-2021/customer-compliance-our-approach-to-tax-compliance-and-large-businesses
Compliance yield for the Large Business Directorate in financial year 2020 to 2021
The following tables show the compliance yield generated by the Large Business Directorate during 2020 to 2021. The head of duty compliance yield is reported on the same basis as the Annual Report and Accounts.
Large Business Directorate
| Tax regime | 2020-21 (£m) |
|---|---|
| Corporation Tax | 2,839 |
| Excise | 916 |
| Income Tax | 64 |
| VAT | 3,952 |
| Other compliance interventions | 824 |
| Total | 8,595 |
Note: The HMRC Annual Report and Accounts reflects £13.2bn compliance yield from activity undertaken on customers in the large business customer segment which is not limited to the Large Business Directorate OR which cuts across Directorates. £8.6bn reflects the proportion of compliance yield achieved 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 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 2020 to 2021, 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 lnsurance Contributions.
A snapshot, at 31 March 2021, 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 | £173,858,491 |
| Alcohol supply chain | £25,329,612 |
| Avoidance | £800,441,053 |
| Bank levy | £62,415,500 |
| Capital allowances | £583,439,308 |
| Classification | £8,631,601 |
| Corporation Tax capital gains | £359,804,836 |
| Customs procedures with economic impact | £36,531,523 |
| Earnings | £82,677,427 |
| Employment issues | £1,346,454,652 |
| EU issues | £315,830,524 |
| Expenses | £5,640,379 |
| Financial | £1,819,566,971 |
| Gaming duty | £144,896,452 |
| Group litigation order | £1,022,417,155 |
| Input tax overclaimed | £1,059,503,763 |
| Intangible asset regime | £1,136,026,140 |
| International[1] | £13,226,437,425 |
| Leasing | £372,960,899 |
| Loss relief | £1,146,035,669 |
| Management expenses | £33,432,343 |
| Oil Corporation Tax ring fence | £89,924,533 |
| Origin | £618,435 |
| Other issues | £2,409,147,914 |
| Output tax underdeclared | £1,730,725,677 |
| Partial exemption | £1,110,066,907 |
| Patent box | £88,500,575 |
| Post return amendment | £10,593,269 |
| Pre return work | £104,612,103 |
| PAYE settlement agreement/dispensation | £33,839,315 |
| Research & development claims | £520,187,903 |
| Research and development expenditure credit | £204,388,479 |
| Refused repayments | £3,004,055,803 |
| Registered trader | £191,720,741 |
| Trading and computations - Receipts and deductions | £2,339,500,910 |
| Valuation | £77,404,149 |
| Voluntary disclosure | £87,209,510 |
| Workers from abroad | £81,349,790 |
| Total | £35,846,177,736 |
[1] From 1 April 2020, inaccuracy categories within HMRC’s management information systems are in the process of being streamlined. For 2020 to 2021, the international inaccuracy category includes:
- International : £3,913,328,591
- Base erosion by MNEs: £1,187,199,396
- Transfer pricing and thin capitalisation: £8,125,909,438
A snapshot at 31 March 2021 of the tax under consideration figure for enquiries by HMRC’s Large Business Directorate, split by country is shown in the following table:
| Country | Tax under consideration |
|---|---|
| Australia | £22,067,539 |
| Canada | £79,351,420 |
| France | £640,401,430 |
| Germany | £669,162,659 |
| Ireland | £674,332,362 |
| Japan | £382,149,488 |
| Luxembourg | £179,473,457 |
| Netherlands | £448,911,428 |
| Switzerland | £824,930,111 |
| United Kingdom | £24,348,283,433 |
| United States | £5,373,100,672 |
| Other | £2,204,013,737 |
| Total | £35,846,177,736 |
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 2021 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 | £700,338,206 |
| Automotive | £182,272,015 |
| Banking | £8,470,508,673 |
| Betting and gambling | £586,327,680 |
| Business services | £1,607,568,570 |
| Construction | £528,050,129 |
| Insurance | £2,297,071,569 |
| Media | £1,132,412,433 |
| None | £4,122,429,106 |
| Oil and gas | £1,842,090,645 |
| Other | £1,232,600,446 |
| Pharmaceutical and healthcare | £4,664,026,463 |
| Real estate | £471,420,620 |
| Retail | £3,541,443,088 |
| Telecommunications and Information Technology | £2,161,604,474 |
| Transport | £511,702,762 |
| Utilities | £1,794,310,857 |
| Total | £35,846,177,736 |
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 fewer than 5 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 2021 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 at 31 March 2021.
| Recorded location of the parent of the group | Tax under consideration |
|---|---|
| UK | £24.4bn |
| Non-UK | £10.4bn |
| Associated with multiple customers with UK and non-UK parented businesses | £1.1bn |
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 2020 to 2021, the average length of time taken to settle an enquiry was 20 months. These figures include cases in litigation.
In 2020 to 2021, the Large Business Directorate reached decision point on risks within 18 months in 79.94% 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 2021 was 169.
Business Risk Reviews – BRR+
Having been introduced in October 2019, the Business Risk Review+ (BRR+) process is now business as usual for HMRC. See www.gov.uk/hmrc-internal-manuals/tax-compliance-risk-management/tcrm3000.
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. These ratings are the result of BRR+ exercises completed in the period 1 April 2020 to 31 March 2021.
BRR+ risk ratings recorded between 1 April 2020 and 31 March 2021
| Low risk | Moderate | Moderate-high | High |
|---|---|---|---|
| 222 | 426 | 55 | 12 |
The number of BRR+s undertaken during the period 1 April 2020 to 31 March 2021 was lower than planned because of the COVID-19 pandemic. This reflects our prioritisation of support to customers during this difficult time. 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 did not stop its compliance work with large business customers during this period; we continued to work risks unless business had legitimate reasons to stop, ensuring we continued to fulfil our vital purpose of collecting the money that pays for the UK’s public services.
Profits Diversion Compliance Facility
In January 2019, we launched the Profit Diversion Compliance Facility (PDCF) enabling multinationals that have used arrangements to divert profits from the UK to review the arrangements and put forward a report, complying with the facility guidance requirements, with proposals to settle any liabilities due. During 2020 to 2021 extra time to complete their PDCF disclosure reports was granted to a number of PDCF registrants due to the impact of the COVID-19 pandemic. A panel of HMRC senior tax specialists met in 2020 to 2021 to consider 23 disclosures under the PDCF.