HMRC has initiated a crackdown on specific corporate structures utilized by City firms, especially within private equity and professional services, to minimize their tax liabilities. This move is part of HMRC's broader effort to increase its tax collection, following a recent success where it collected an additional £16 billion from large businesses by adopting a more hands-on approach. The agency's large business directorate demonstrated a return on investment of £95 for every £1 spent on staff pay, significantly higher than the average across all taxpayers.
The focus of this clampdown is on structures that HMRC believes lead to untaxed profits. This indicates a targeted effort to scrutinize complex arrangements often used by sophisticated financial and professional firms. The National Audit Office (NAO) highlighted HMRC's effective strategy with large businesses, noting a reduction in the large business tax gap from £7.5 billion in 2005-06 to an estimated £5.8 billion in 2023-24.
The increased tax collection from large businesses is partly attributed to HMRC's enhanced use of penalties and sophisticated data analysis. Despite issuing 636 penalties in 2024-25 compared to 164 in 2021-22, 71% of these fines were suspended due to the businesses' cooperation or cessation of non-compliant behavior. This proactive enforcement and analytical capability are now being extended to challenge specific corporate structures to capture more tax revenue.
