HMRC investigations into individuals and small businesses last year yielded no returns in 47% of all cases, finds recent research.
The proportion of investigations which returned no money to the Treasury has risen by over a third, to 47% last year up from 31% the year before, as the number of investigations slowed during the pandemic while HMRC resources were redirected to covid-related activity.
Investigations by HMRC can be highly intrusive into taxpayers’ affairs, starting with seemingly informal questions that can develop into full enquiries taking many years to close.
Historically, investigations have often come up short, with just two thirds generating additional tax during 2019-20. The previous tax year, 2018-19, marked a three-year high of failed investigations, with 129,000 raising no money for HMRC. This raises serious questions about the type of taxpayers being targeted by HMRC.
To combat non-compliance and support in its tax investigations, HMRC invested an estimated £100m in software which tracks patterns in taxpayer data across its services. The Connect system was introduced in 2010 to make HMRC’s job at collecting unpaid tax easier by risk profiling individuals and businesses. However, the low success rate of investigations suggests it may be failing to exclude the lowest risk taxpayers.