VAT investigations up as businesses challenge taxman

A SIGNIFICANT INCREASE in VAT investigations could put businesses and the taxman at loggerheads, lawyers have warned, as the ailing economy puts a strain on the government’s finances.

The UK’s largest companies paid about £1.84bn after investigations carried out by HM Revenue & Customs into VAT avoidance for the 2010/11 tax year, approximately treble the £443m paid out the previous year. The number of companies investigated rose 42% in the same period, reports the Telegraph.

The data, which is the most recenta available and gleaned after a Freedom of Information request, demonstrates HMRC’s “aggressive” approach, according to Steven Porter, associate at law firm Pinsent Masons.

Porter added that George Osborne’s decision to raise VAT to 20% from 17.5% in January 2011 had exacerbated the pressure on business.

“With their eye on the bottom line, businesses will have been looking for ways to limit their VAT liabilities as much as possible. HMRC has responded aggressively,” he said, pointing to the taxman’s focus on grey areas such as the accounting treatment of VAT.

HMRC said the figures are distorted somewhat by exceptional payments, including a one-off sum of £500m generated by investigations into the leisure and gaming industry. In spite of that, 2010/11 was still the highest-yielding year for VAT in the last five years.

HMRC said it “works hard to ensure that the right amount of tax is paid at the right time” and that its campaign against avoidance was working.